Burger King Worldwide Holdings Inc., the fast-food chain taken private in 2010 by New York investment firm 3G Capital Inc., will go public again after merging with a company owned by William Ackman.
3G will get $1.4 billion in cash to transfer Burger King to Justice Holdings Ltd., a special-purpose acquisition company co-founded by Ackman, according to a statement yesterday. Justice and its founders will hold 29 percent of the chain, giving Burger King an equity value of about $4.8 billion. Ackman said today on a conference call the deal implies an equity valuation of $5.5 billion from the perspective of the non-founding shareholders of Justice.
3G, backed by Brazilian billionaire Jorge Paulo Lemann, paid $3.3 billion for Burger King just 18 months ago. Since that takeover, the biggest restaurant deal in at least a decade, Burger King sales have stagnated, prompting the chain to experiment with new items and delivery service. Ackman said he plans to add Burger King stores internationally and franchise more sites to bolster earnings.
“It seems a little quick” for a sale, said Peter Saleh, an analyst at Telsey Advisory Group in New York. 3G hasn’t “changed all that much in a year and a half,” and a lot of the restaurants are in need of remodeling, he said.
Burger King, which announced a new menu on April 2, has struggled to keep pace with McDonald’s Corp. The company has also tried to remodel stores to a so-called 20/20 prototype, which includes corrugated metal, brick, wood and concrete. There are more than 12,500 Burger King restaurants worldwide, of which about 90 percent are franchised.
Burger King can improve profitability by franchising more sites, shifting more of the risks, such as volatile commodities prices, to store owners, Ackman said today on a conference call. He aims to franchise all the stores save for about 100 around Miami that can be used for test marketing.
The chain also has more potential for international expansion than rivals such as McDonald’s, he said. Burger King has about 5,000 restaurants outside North America, compared with more than 17,900 for its larger rival. Burger King’s global tally may rise to 17,000 by 2016, he said on the call.
Fourth-quarter revenue fell 0.7 percent to $580.6 million from a year earlier, Burger King said last month in a statement. Global comparable-store sales rose 1.2 percent in the same period, led by growth in Latin America, the Caribbean, Europe, the Middle East and Africa.
The Whopper burger seller’s new food includes salads, smoothies and chicken snack wraps -- all of which Oak Brook, Illinois-based McDonald’s already has on its menu. Burger King also retired its King mascot last year to appeal to a broader group of consumers, including women and kids.
“I don’t know if they necessarily had a clear strategy in terms of the customer they were targeting,” Saleh said. “Switching your strategy takes some time.”
After the deal closes, Justice will immediately stop trading on the London Stock Exchange and Burger King Worldwide Inc. will start trading on the New York Stock Exchange. Ackman said the deal implies a share price of about $16 for Burger King.
3G will remain the largest shareholder in Burger King, with a 71 percent stake. The firm’s Brazilian investors include Lemann, who owned a stake in the Brazilian-Belgian beer company InBev, which later bought Anheuser-Busch.
Justice Holdings, started by Nicolas Berggruen, Martin Franklin and Ackman, raised 900 million pounds ($1.4 billion) in a February 2011 initial public offering in London. Berggruen is the owner of Karstadt, Germany’s biggest department-store chain, and also co-leads the New York-based Liberty Acquisition Holdings Corp. with Franklin. Ackman’s Pershing Square Capital Management LP oversees about $9 billion.
Berggruen targets companies loaded with debt or those with family owners looking to retire. He restructures those businesses’ debt and invests in expansion, typically owning them for a decade or more.