Burger King sold to buyout firm 3G Capital for $4 bln

World's No.2 fast-food chain Burger King Holdings Inc. (NYSE.BKC) said, Thursday, it has agreed to be acquired by buyout firm 3G Capital in a deal valued $4 billion including debt.

Burger King, home of the high-calorie Whopper burger, said the deal values the company at $3.26 billion or $24 per share or 46 premium to the company's closing price on August 31 before reports of a deal first surfaced. Including Burger King's debt, the deal is valued at $4 billion.

"We have great respect for the Burger King brand and the strong business that management, the employees and the franchisees have built. The iconic brand, its solid franchisee network and great product offerings make this a perfect fit for 3G Capital, which has a strong track record of long-term investments in global consumer brands and retail companies," said Alex Behring, managing partner of 3G Capital.

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3G's financial advisers JPMorgan Chase and Barclays Capital will fund the deal.

"We look forward to partnering with 3G Capital, whose proven track record as an investor, together with its financial and consumer brands experience, will serve to further strengthen the company, our restaurants and franchisees worldwide," Burger King CEO John Chidsey said in a statement.

Chidsey will continue in his role during the transition period following which he will become co-chairman of the board with Behring.

However, the deal is not final as Burger King can solicit higher bids through October 12. British private equity firm 3i Group Plc is reportedly one of the several potential buyers who are interested in Burger King.

Several restaurant chains have gone private this year mainly due to relatively low valuations that have attracted private players. While Rubio's Restaurants was recently taken private by Mill Road Capital, CKE Restaurants - owner of Hardee's and Carl's Jr. - was sold to Columbia Lake Acquisition Holdings, an affiliate of Apollo Management VII LP. Earlier this week, Logan's Roadhouse, a casual-dining chain, said it would be sold to Kelso & Co.

Market analysts said they were not surprised by Burger King's announcement.

Burger King recently disappointed the Street by reporting lower-than-expected fourth quarter sales and warned that its business would continue to remain under pressure in the new fiscal year.

The company has witnessed a decline in same-restaurant sales for the fifth consecutive quarter amid a sluggish economic recovery that witnessed high unemployment rates and weak consumer confidence. Burger King operates over 12,000 restaurants in more than 75 countries worldwide.

Burger King also warned high unemployment rate in the US and government austerity programs in several European states would weigh on same-restaurant sales in the new fiscal year. Two-third of Burger King's revenue comes from the US and Canada.

Despite increasingly focusing on premium offerings such as the Burger King Breakfast Bowl, XT Burger, Whiplash Whopper and Fire-Grilled Ribs, Burger King continues to lag behind rivals like McDonald's Corp. because its customers mainly consist of young males, who are suffering from long periods of unemployment in industries like construction and manufacturing.

"Burger King's heavy user - young, male, and more likely to be a minority - has had a higher rate of unemployment than the McDonald's consumer," New York-based Telsey Advisory Group analyst Tom Forte told Bloomberg.

"Burger King may actually be better off as a privately held entity at this point in its history," Janney Capital analyst Mark Kalinowski said, as it allows the company's new management to focus on fixing the challenging it is facing.

Analysts said the deal values Burger King at 9 times EBITDA (earnings before interest, taxes, depreciation, and amortization) in the year ended June 30. Over the past five years, US restaurant acquisitions closed at a median multiple of 8.2, according to Bloomberg data.

Burger King's current owners include private equity firms TPG Capital, Bain Capital and Goldman Sachs Capital Partners. They got control over Burger King in 2002 when they bought it from British drinks company Diageo for $1.5 billion. They floated Burger King four years later but still hold 32 percent stake in the company.

3G is a Brazilian buyout firm is founded by billionaire Jorge Paulo Lemann and backed by other prominent Brazilian businessmen. Its main holdings include railroad company CSX Corp, which constitutes 83.2 percent of 3G's portfolio, and bottler and distributor Coca-Cola Enterprises, which accounts for 5.5 percent of 3G's portfolio.

At 11.56AM (EDT), shares of Burger King were trading up 24.18 percent at $23.42.