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Report: Burger King in buyout talks

Burger King Holdings Inc. would not comment on reports Wednesday that the parent of the nation's No. 2 hamburger chain is in talks about a possible sale.

News outlets reported Wednesday morning that the Miami-based company had been meeting with potential buyers. A Burger King spokeswoman told Nation’s Restaurant News that it "does not comment on speculation or rumor."

The Wall Street Journal said that among the prospective buyers was 3i Group of London, though a spokeswoman for the firm later told the Associated Press that it was not in talks with Burger King. The New York Times reported later Wednesday that the fast-food company was in buyout discussions with 3G Capital of New York, which last year invested in Wendy's/Arby's Group Inc.

The buyout speculation sent shares of Burger King up more than 14 percent in midday trading Wednesday to just under $19 a share. The company's share price has traded between $16.31 and $22.19 over the past 52 weeks.

Burger King has been a public company since May 2006 and has a market capitalization of about $2.4 billion.

The restaurant segment has seen a number of acquisitions this year, including the sale of Hardee’s and Carl’s Jr. parent company CKE Restaurants Inc. to an affiliate of Apollo Management VII LP, Rubio's Restaurants being taken private by Mill Road Capital, and Logan’s Roadhouse just this week announcing a sale to Kelso & Co.

Analysts said Wednesday that a Burger King buyout was plausible, given the jump in private-equity buyout activity and the company's recent sales woes and franchisee tension.

Mark Kalinowski, an analyst with Janney Capital Markets, wrote in a report that “Burger King 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.”

In its June 30-ended fourth quarter, Burger King reported a 16.8-percent drop in profit on high beef costs and slow sales, including a 1.5-percent drop in same-store sales at the company's U.S. and Canadian stores. Chief rival McDonald's, meanwhile, reported a 12-percent surge in profit and a 3.7-percent jump in domestic same-store sales for its June 30-ended second quarter.

In addition to Burger King's recent sales performance, David E. Tarantino, an analyst with R.W. Baird, said in a report Wednesday that the company’s potential in international markets and healthy cash flow are other factors that would make a buyout likely.

He added that “the private equity consortium that led the leveraged buyout of Burger King in 2002 still owns 31 percent of outstanding shares; a sale would allow these investors a logical exit from their positions.”

That group, made up of Bain Capital, Goldman Sachs and TPG, bought Burger King from Diageo of Britain for about $1.5 billion.

Burger King operates or franchises more than 12,000 restaurants in the United States and 76 nations and territories.

Contact Ron Ruggless at [email protected].

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