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Restaurant shares increase on BK deal news

Thursday’s news of a pending $4 billion deal to acquire Burger King Holdings Inc. — the latest in a string of recent private-equity moves in the sector — boosted a number of restaurant stocks, including the No. 2 burger brand.

PREVIOUSLY: 3G Capital acquires Burger King for $4B

Burger King shares closed Thursday up 25 percent to $23.59, with nearly 90 million shares traded, or about 40 times the usual volume. The company’s shares had traded between $16.31 and $22.19 during the 52 weeks ended Aug. 31, before news of the deal began to leak.

A number of other restaurant companies also saw shares rise Thursday amid speculation of more private-equity deals in the segment: Carrols Restaurant Group Inc., Burger King’s largest franchisee, rose 6.2 percent; Wendy’s/Arby’s increased 6.6 percent; Jack in the Box increased 3.8 percent; California Pizza Kitchen rose 4.8 percent; Brinker International rose 6.5 percent; and DineEquity increased 7.8 percent.

The NRN Restaurant Stock Index, which is a market cap weighted index of all public companies, increased 2.4 percent, beating Thursday market moves that included a 0.5-percent uptick for the Dow, a 1-percent increase from the NASDAQ and a 0.8-percent increase at the New York Stock Exchange.

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,” he noted.

Burger King’s $4 billion deal comes on the heels of several restaurant company acquisitions. They include Hardee’s and Carl’s Jr. parent company CKE Restaurants Inc., which was sold to an affiliate of Apollo Management; Rubio's Restaurants, which was taken private by Mill Road Capital; and Logan’s Roadhouse, which earlier this week was sold to Kelso & Co.

3G Capital of New York agreed to pay $24 a share for Burger King, which the company said was a 46-percent premium over the price before sale rumors began this week. The deal value also includes the assumption of debt.

The deal is expected to close in the fourth quarter and 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.

An investment group that had taken Burger King private in 2002, which includes Bain Capital Partners, Goldman Sachs Funds and TPG Capital, still retains 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.

“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, with Brazilian backers, 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 [Burger King’s] employees and franchisees to continue to invest in the brand for the benefit of all its guests, employees and franchisees.”

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

The deal gives Burger King financial flexibility, “to take on debt to drive much needed initiatives such as upgrading the POS and remodeling the store base to try and catch up to McDonald's,” analysts Steve West and Matthew Van Vliet of Stifel Nicolaus Weisel said in a note.

“Longer-term, we would not be surprised to see Burger King back in the public markets, if they can get fundamentals back on track to weave a more compelling, sustainable growth story,” West and Van Vliet said.

Contact Ron Ruggless at [email protected].

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