Burger King Holdings Inc. agreed to be acquired by 3G Capital, a New York investment firm backed by Brazilian investors, for $3.3 billion in the biggest restaurant acquisition in at least a decade.
The $24-a-share price is 46 percent more than Miami-based Burger King's close Aug. 31, before reports of a deal surfaced. Under the terms of the agreement, the second-largest U.S. burger chain can solicit superior bids through Oct. 12, according to a statement Thursday.
The chain's sales have slowed for two straight years as consumers ate out less during the U.S. economic slump. Burger King, which trails only McDonald's Corp. in the U.S., has seen a slower recovery than its larger rival as its clientele suffered more from the recession, said Tom Forte, an analyst at New York- based Telsey Advisory Group.
"Burger King's heavy user — young, male and more likely to be a minority — has had a higher rate of unemployment than the McDonald's consumer," Forte said.
Burger King's once-unique concept of flame-broiled burgers isn't so rare anymore, thanks to a boom in gourmet hamburgers from smaller competitors such as Five Guys and Culver's. And its profits suffer from trying to match McDonald's super-low prices, which has angered franchisees.
"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 whoever has a better deal or whatever is hotter."
Analysts say Burger King needs a new approach with the help of its new owner, including becoming more efficient and differentiating itself from McDonald's by creating new menu items that will keep its customers coming back.
The company needs to work with its large group of franchise owners to brighten locations, UBS analyst David Palmer said. That will take time and money.
Burger King will likely need the support of that massive base of franchise owners, who own most of its locations in the U.S. and with whom the chain has squabbled over its deeply discounted promotions.
3G is an investment vehicle whose main investors are three Brazilian business partners — Jorge Paulo Lemann, Marcel Herrmann Telles and Carlos Alberto da Veiga Sicupira, according to three people with knowledge of the matter.
The men founded Brazilian investment bank Banco de Investimentos Garantia SA and agreed to sell to Credit Suisse Group AG in 1998 for at least $675 million.
Lemann's Background
Lemann, 71, whose personal fortune was estimated by Forbes magazine at $11.5 billion this year, and his partners also own stakes in Anheuser-Busch InBev NV, the world's biggest brewer, and Brazilian retailer Lojas Americanas SA.
3G is run by managing partner Alexandre Behring, who joined in 2005 after previously working at a buyout firm founded by Lemann. Before the Burger King deal, 3G focused mostly on investments in public equities.
In a U.S. regulatory filing, it disclosed holdings of about $1 billion in stocks as of June 30, including its biggest position, CSX Corp.
3G was in the news in July when a partner at the firm, Marc Mezvinsky, married Chelsea Clinton, the daughter of U.S. Secretary of State Hillary Clinton and former President Bill Clinton.
Chidsey's Role
John Chidsey, Burger King's chief executive, will remain CEO through a transition period, according to the statement. Chidsey will then become co-chairman of the board along with Behring.
Burger King gets about two-thirds of its revenue from the U.S. and Canada. The chain also operates in Latin America, Europe and parts of Asia. Total sales fell 1.4 percent to $2.5 billion in the year ended June 30, Burger King said last week.
The Associated Press contributed to this report
