3G Capital to acquire Burger King for $24 per share, or $3.26 billion

Burger King agrees to $3.26B buyout by 3G Capital

CHICAGO — Burger King Holdings Inc., the nation’s perennially No. 2 hamburger chain, said Thursday that it is selling itself to little-known private equity firm 3G Capital in a deal valued at $3.26 billion.

Its shares soared to an 18-month high.

Thursday’s $24-per-share tender offer comes after a day of speculation about the deal that sent shares up more than 15 percent. The offer is a nearly 46 percent premium over the company’s stock price before rumors of a buyout began circulating.

Under the terms of the deal with 3G, Burger King’s Chairman and CEO John Chidsey will become co-chairman of the board and will be joined by 3G Managing Partner Alex Behring as the other co-chairman.

Burger King, with its 12,100 locations around the world, lags its far larger competitor McDonald’s Corp., and has struggled to keep up with its rival during the economy’s rollercoaster of the past two years.

Among the biggest problems: high unemployment among its most important, but notoriously fickle, group of customers: young men between 18 and 34.

It’s more than the bad the economy that’s led to five consecutive quarters of declines in an important performance measure of sales at locations open at least a year.

Burger King’s once-unique concept of flame-broiled burgers isn’t so rare any more, thanks to a boom in gourmet hamburgers from smaller competitors such as Five Guys, The Counter and In-N-Out Burger. And it’s hard for Burger King to make solid profits while competing with McDonald’s super-low prices.

“McDonald’s is just eating their lunch,” said Bob Goldin an analyst at the food consulting firm Technomic Inc. “Burger King’s very heavily focused on a core audience of the younger male. And with that group, their attention goes to wherever has a better deal or whatever is hotter.”

To turn things around, Burger King may need to try a slightly different approach with the help of 3G Capital, analysts said.

Among the ideas: becoming more efficient, expanding its international business, and creating a new niche menu that’s less about trying to out-McDonald’s its competition and more about adding new and innovative items to its menus that will keep its hungry customers coming back.

So far, it’s already had some success with its popular BK Ribs, which even at a high price of $7 for an eight-piece order, sold out earlier than expected this spring. The company is also changing its breakfast menu.

“This will give them more of an opportunity to develop a compelling menu,” said Morningstar analyst R.J. Hottovy. “And having a backer probably allows them to be more aggressive in terms of international expansion plans.”

Others, though, think there could be few changes ahead.

UBS analyst David Palmer told investors he thinks that the company needs to work with its large group of franchise owners to brighten its locations.

“In our view, improved restaurant assets will be a key to stabilizing sales — and this is something that could take several years and require significant reinvestment in assets,” he wrote in a research note.

Burger King is based in Miami and became publicly traded in 2006, four years after an earlier consortium of investment firms acquired the company.

The group — TPG Capital, Bain Capital Partners and Goldman Sachs Funds — still owns 31 percent of Burger King’s outstanding shares and have agreed to tender their stock in the deal.

3G Capital has a slew of partial or controlling holdings in South and Central American businesses, it hasn’t made many huge waves — or fully bought out many corporations.

But its investments hint that its strategy involves investing in businesses that deal heavily with consumers. The firm owns controlling or partial stakes in major beer maker Anheuser-Busch InBev; Lojas Americanas, a major non-food and online retailer in Latin America; and America Latina Logistica, the largest railroad and logistics company in Latin America.

The company had a minor stake of less than 1 percent of outstanding shares of Burger King rival Wendy’s/Arby’s Group Inc. as of May. The stake was worth about $14.3 million, but according to regulatory filings, 3G shed that interest by August.

The company’s biggest holding is its 4.5 percent stake of CSX Corp., the nation’s third-largest railroad. The stake was worth $855.3 million earlier this month, according to filings.

3G Capital is expected to begin its effort to acquire the outstanding shares by Sept. 17.

Burger King shares rose $4.57, or 24.2 percent, to $23.43 in midday trading Thursday.

Fredrix reported from New York.