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3G Capital to Buy Burger King, Litigation and All

Burger King bought by 3G Capital for $3.3 billion

MIAMI – Yesterday, Burger King agreed to sell its company stock to New York private equity firm 3G Capital for a price of $3.26 billion, including the assumption of debt. This will be the second time in eight years that the number two burger chain has been taken private.

Under the terms of the definitive agreement, which has been unanimously approved by Burger King’s board of directors, stockholders will receive $24 in cash per share for all outstanding shares of its common stock, representing a 46% premium to the company’s unaffected share price before recent market rumors. In a press release, Burger King said 3G Capital has obtained committed financing to purchase all outstanding shares and refinance existing indebtedness. They expect the transaction to close in the fourth quarter of this calendar year.

Alex Behring, managing partner of 3G Capital, said, “We have great respect for the Burger King brand and the strong business that management, the employees and the franchisees have built. The iconic Burger King 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. 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.”

Burger King’s chairman and chief executive officer John W. Chidsey also expressed his delight with the sale. “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. We are committed to maintaining the superior guest experience the Burger King system is known for around the world as we transition ownership.” Under the terms of the sale, Chidsey will become co-chairman of the board with Behring.

An insider shared with Blue MauMau that they think that Chidsey, who saw competition eat away at the chain and a growing group of unhappy franchisees who sued the firm, will fade away from a real leadership role in the company. His replacement as CEO, whoever that might be, will likely bring turnover in the company’s ranks of officers and a change in the direction of the company towards international development.

Today 3G Capital posted a “message to Burger King Holdings, Inc. franchisees,” in part stating, “We understand that you may have some concerns and questions regarding the immediate impact to your business. Together with BKC management, we are working to create a seamless transaction and to minimize disruption for all franchisees, company-owned restaurants and your combined employees across the globe. At this time, there will be no change to franchise agreements and we intend to maintain BKC's commitment to its brand, product offering and service.”

Approximately 90 percent of the Burger King chain is owned by franchisees, many of whom have been engaged in disputes and litigation with the franchisor in the past. The National Franchisee Association filed two class action lawsuits last year, pertaining to Burger King’s mandate on the value sandwich and its control of the advertising fund.

At one point last year, franchise owners took their complaints directly to the chain’s board of directors, demonstrating that they could no longer work with Burger King’s leadership. 

Burger King has not yet responded with comments prior to publishing. Yesterday, NFA told Blue MauMau that they were surprised by the announcement of the sale to 3G Capital.  Although the association has refused to answer questions, it released this statement moments ago: “On behalf of our member franchisees, we welcome 3G Capital as the potential new owner of our great brand,” said William Harloe Jr., NFA Chairman. “We were pleased to hear Alex Behring, managing partner of 3G Capital, recognize BKC’s ‘solid franchisee network’ during their announcement this morning and that they look forward to ‘working together with the company’s employees and franchisees to continue to invest in the brand.’”

“Since franchisees are the largest investors and stakeholders in our brand, operating almost 90 percent of Burger King restaurants in the U.S. and worldwide, we are encouraged by 3G Capital’s commitment to our long-term mutual success,” Harloe added. “We look forward to working with everyone during this transition to improve the sales, traffic and value of our restaurant investments.”

Is Ongoing Litigation the 800-Pound Gorilla in the Room?

Last Friday the NFA and certain individual franchisees filed their consolidated class action complaint in Florida federal court. The lawsuit alleges that Burger King has acted or refused to act on grounds that apply generally to the class, so that declaratory relief is appropriate respecting the class as a whole. It states that common questions of law and fact exist as to all class members, as to what extent the class members are obligated by the franchise agreements to abide by Burger King’s directive setting and mandating maximum prices, especially when that price is at or below what cost the franchisees to produce and sell.

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