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3G Capital acquires Burger King for $4B

Burger King Holdings Inc. said today it has agreed to be acquired by private-equity firm 3G Capital in a deal valued at $4 billion.

3G Capital of New York agreed to pay $24 a share for the No. 2 burger chain, which the company said was a 46-percent premium over the price before sale rumors began this week. Burger King shares had been trading between $16.31 and $22.19 over the past year.

3G also agreed to assume Burger King’s debt.

The deal, which is expected to close in the fourth quarter, calls for John Chidsey, chairman and chief executive of Burger King, and Alex Behring, managing partner of 3G, to serve as co-chairmen of the new company.

Miami-based Burger King has been a public company since May 2006, and its board unanimously approved the sale agreement.

“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,” Chidsey said in a statement.

3G Capital and its partners own stakes in Anheuser-Busch InBev, Lojas Americanas, online retailer in Latin America, and America Latina Logistica, a railroad and logistics company in Latin America.

Behring of 3G said, “We are excited to work together with the company’s employees and franchisees to continue to invest in the brand for the benefit of all its guests, employees and franchisees.”

As buyout rumors swirled on Wednesday, Mark Kalinowski, an analyst with Janney Capital Markets, wrote in a report that the burger giant “may actually be better off as a privately held entity at this point in its history.

“The company faces some large, long-standing challenges that may be better solved out of the public eye,” he said. “One big challenge is the parent company's strained relations with its franchisees. Another challenge facing Burger King is, how does it best position itself so that it doesn't come off to fast-food fans as simply another McDonald’s.”

For the fourth-quarter ended June 30, Burger King reported a 16.8-percent drop in profit on high beef costs and slow sales. It also reported a 1.5-percent drop in same-store sales at the company's U.S. and Canadian stores.

Rival McDonald's had reported a 12-percent increase in profit and a 3.7-percent jump in domestic same-store sales for its similar second quarter.

Several restaurant companies have been acquisition targets this year. They include Hardee’s and Carl’s Jr. parent company CKE Restaurants Inc., which was sold to an affiliate of Apollo Management VII LP; Rubio's Restaurants, which was taken private by Mill Road Capital; and Logan’s Roadhouse, which earlier this week was sold to Kelso & Co.

The Burger King deal has “positive implications for restaurant valuations” in general, David Tarantino, an analyst with R.W. Baird, said in a
report Thursday. “We think further signs of buyout activity could support group multiples in the near term, as private-equity firms seemingly have a strong appetite for deals in the restaurant space.”

3G is expected to begin to acquire outstanding shares by Sept. 17. An investment group that had taken Burger King private in 2002, which includes Bain Capital Partners, Goldman Sachs Funds and TPG Capital, still retain 31 percent of Burger King shares and have entered into agreements to tender their stock.

3G Capital has received debt commitment letters from JPMorgan Chase Bank NA and Barclays Capital to provide financing.

Burger King owns or franchises more than 12,150 restaurants in the United States and 76 other nations and territories.

Contact Ron Ruggless at [email protected]

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