Burger King agreed on Thursday to sell itself to 3G Capital Management, a New York investment firm backed by prominent Brazilian businessmen. The company has agreed to acquire the chain for $24 a share, a 46% premium on Burger King’s August 31 closing price.
With a value of about $4 billion including debt, the Burger King/3G deal is the industry’s biggest since Arby’s owner Triarc bought Wendy’s for $2 billion in September 2008. 3G decided upon Burger King as a potential investment several months ago and began a series of friendly discussions with the fast-food chain’s management.
Private equity firms are sitting on mountains of cash after raising bumper funds before the credit crisis, and they are still trying to invest that money. Restaurants are prime targets. Some company valuations are low, most generate a lot of cash, and chains that have a high percentage of their units owned by franchisees have low capital requirements.
Diners have cut back on meals away from home amid high U.S. unemployment and a slow economic recovery. As a result, both sales and share prices are down at some restaurant chains. The lower potential sale prices create an opportunity for a buyer to profit when the economy recovers.
