A LITTLE-KNOWN private equity firm stunned Wall Street by taking over troubled fast food chain Burger King in a $4bn (£2.6bn) deal yesterday.
Analysts began talking about a potential wave of takeovers in the restaurant sector after 3G Capital, a New York-based vehicle run by three Brazilian billionaires, agreed a $24-per-share offer with the company’s board. The generosity of the 46 per cent premium to Burger King’s undisturbed share price surprised many market participants.
3G will take on the eatery operator’s £750m debt pile and keep chief executive John Chidsey as co-chairman alongside 3G partner Alex Behring. Headhunters will be searching for a fresh candidate to succeed Chidsey as chief executive.
3G said it had raised financing from JPMorgan Chase and Barclays Capital. The transaction is expected to close in the fourth quarter.
Burger King, which returned to public ownership in 2006 after a spell under the control of private equity groups TPG, Goldman Sachs and Bain Capital, has struggled during America’s lengthy downturn.
Its reliance on working class, male customers meant soaring joblessness hit the franchise hard. Last week Burger King said worldwide sales were down 2.3 per cent this year, with sales in the US down 3.9 per cent.
In contrast, bitter rival McDonald’s grew its global sales 4.8 per cent in the second quarter, with US sales up 3.7 per cent. Burger King has been trying to fight back with thicker, steak-like premium products.
Jake Bartlett, an analyst at Susquehanna Financial Group, said: “This buyer has a more optimistic view of the future than most of the Street does on the stock. Everyone was just shocked to see the bid at nine times 2010 earnings.”
Tom Forte, an analyst at Telsey Advisory Group, predicted a “wave of mergers & acquisitions” for the casual dining space. Forte named Mexican grill Brinker International and ribs restaurant Ruby Tuesday as targets.
“We won’t have any companies left to cover pretty soon,” he said. “The restaurant sector is an interesting space for private equity looking for companies to generate free cashflow.”