Brazilian-Owned 3G Capital Buys Burger King

Investment firm 3G Capital bought Burger King today for $3.26 billion. 3G Capital is backed by Brazilian tycoon Jorge Paulo Lemann, known in Brazil for founding the prestigious investment firm Banco Garantia and owning Brazilian brewing giant AmBev, which eventually merged with Belgium’s Interbrew to become InBev.

Burger King isn’t 3G’s first US fast food investment. The firm invested in Wendy’s in the past, according to the New York Times, which has more of the story:

3G views Burger King as a turnaround opportunity…Burger King has struggled lately. Last week it forecast weak demand in its new fiscal year amid high unemployment in the United States and economic weakness in Europe. It also cautioned that uncertainty regarding the costs of wheat and beef could affect its results.

The fast-food giant was last taken private in 2002 by three buyout firms — TPG Capital, Bain Capital and Goldman Sachs’s private equity unit — but since returning to the public markets in 2006, it has underperformed its biggest rival, McDonald’s. From its initial public offering until Tuesday, before reports of a potential sale emerged, Burger King’s shares have fallen about 6 percent, according to Standard & Poor’s. During the same time period, McDonald’s stock has climbed 111 percent.

Among 3G’s plans for the fast-food chain is building out internationally. Burger King already has 93 restaurants in Brazil and plans to open about 500 new franchises in Latin America over the next five years, the company disclosed in a regulatory filing.

3G expects to begin its tender offer no later than Sept. 17 and to close the deal in the fourth quarter this year. Burger King has the right to solicit higher offers through Oct. 12 under what is known as a “go-shop” period.

The Wall St. Journal has some analyst commentary on the situation:

BK, America’s second-biggest burger chain after McDonald’s, has been down this road before, having gone public in 2006, which is why some franchisees and investors are grumbling about the idea of going private again. As the WSJ’s Julie Jargon notes, some figure BK’s problem is its intense focus on die-hard Whopper munchers and a lack of menu creativity — not the ownership.

(Another analyst) figures that going private will allow Burger King to make more dramatic changes than it otherwise would, to “shake the boat a little more,” since there would be fewer cooks in the kitchen. With shareholders out of the picture, 3G Capital could help BK catch up to McDonald’s, which has impressed investors by offering everything from salads and snack wraps to smoothies lately. BK could also stop worrying so much about its debt.

Finally, $4 billion seems to be a pretty good price, according to Telsey Advisory Group analyst Tom Forte, who notes that BK’s shares were just $16.45 — near a 52-week low — before the buyout chatter heated up.

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