Giant fast-food chain Burger King announced on Thursday a $3.26 billion deal that would transfer its ownership and all its current debts to Brazilian investment company 3G Capital, in a contract described by market analyst CapitalIQ as the biggest leverage buyout in recent history for a fast-food firm.
The takeover deal would also be the second time that Burger King had changed hands in the last eight years, which analysts said was reflective of the company’s struggles that date back in the early 2000s.
Once the deal is finalized, the Miami-based fast-food giant is poised to be jointly-owned by Brazilian investors, a well-known billionaire and a former tennis champion said to be a close friend of Warren Buffet, himself an influential business investor.
Sources privy to the negotiations of the agreement said that Burger King and 3G started discussing the details of the takeover several months ago and secretly wrapped up the deal, codenamed ‘blue’ in alluding to Blue Lagoon Drive headquarters of the company, in accordance to 3G’s planned expansion in Latin America and Asia.
3G managing partner Alexandre Behring said that the iconic name of Burger King, its strong franchise network and exciting product offerings were perfectly suited for the Brazilian firm’s business thrust.
However, analysts were quick to note that the deal was forged amidst the continuing sales declines of Burger King in North America where the company draws almost 70 percent of its overall revenues.
Just last week, the company issued a gloomy projection that sales would continue to suffer at the start of the new fiscal year as it cited that instability in the prices of wheat and beef could greatly impact its fist half results.
Industry experts said that Burger King’s continuing slide could be attributed to its fixed offerings as compared to the flexible menu of its nearest rival, McDonald’s, plus the fact that most of the fast-food chain’s established patrons, mostly younger men, were believed to be hard hit by the economic crisis.
Burger King chairman and chief executive John Chidsey and Behring revealed the development to company employees on Thursday, also announcing that prior to the finalization of the contract, Chidsey would remain in his post while Behring would assume co-chairmanship responsibilities, with the post of chief executive to be filled up later.
The two executives gave assurance that Burger King would continue on as before and more investments should be expected from the new owner, 3G Capital.
Burger King is expected to receive $24 per share for a total of $3.26 billion from 3G under the deal, registering a 46 percent premium from its share values prior to the takeover talks, though the company’s stocks had spiked to a high of $22.06 in April and even settled to $23.59 following the announcement of the deal.
3G responded to critical questions on the pricing of the deal by flatly stating that its offer was fair, citing its earlier assumption that Burger King’s stocks were undervalued by the market as it pointed to the recent climbs that the shares have attained.
Also, just a week before the agreement, Bloomberg News had reported that Burger King’s volume of options to purchase its stocks soared to 37,427, lifting by as much as 20-fold from the usual standing from a month ago.
Both companies said that the deal would be finalized by the fourth quarter of 2010 with 3G first set to start its tender by September 17 and in between, Burger King could still exercise its right to entertain rival offers until October 12.
Burger King was bought in 2002 by TPG Capital, Bain Capital and Goldman Sachs but it went public again in 2006 while its probable new owner, 3G Capital, is mainly investing on consumer-focused firms.