King's ambitions growing

Burger King Holdings Inc. decided to sell itself for $3.26 billion to 3G Capital. The restaurant chain has more than 12,100 locations worldwide, such as this one advertising sandwiches Thursday in Los Angeles, and its buyer is attracted to opportunities i

CHICAGO -- Burger King's new ruler could help its empire expand.

Burger King Holdings Inc. sealed a deal Thursday to sell itself for $3.26 billion to 3G Capital, an investment firm with strong ties to Latin America. The fast-food chain's chairman and chief executive officer, John Chidsey, said the deal will help it expand more rapidly overseas.

Chidsey, who will become co-chairman of the company, said the $24-per-share deal also brings 3G Capital's experience and contacts abroad.

"Hopefully they'll be able to even provide more of an accelerant to the fire," he said.

More than a third of Burger King's locations are outside the U.S. That's growing as the company shifts its expansion focus to other countries. In the past year, 90 percent of its new locations were built abroad.

Chidsey declined to comment on specific strategies, deferring to 3G Capital. He also declined to comment on potential efforts to cut costs, including layoffs. Messages left for 3G Capital weren't returned but the company told franchisees and investors in a letter on its website that it plans to invest in the brand and highlighted opportunities in Asia and Latin America. Burger King's headquarters will remain in Miami.

Burger King has more than 12,100 locations around the world and perennially lags its far-larger competitor McDonald's Corp. It struggled to keep up with its rival during the economy's roller coaster of the past two years.

Its biggest problem: high unemployment among its most important, but notoriously fickle, group of customers -- young men between 18 and 34, whom it has targeted with big burgers like the 930-calorie BK Quad Stacker and edgy ads featuring the creepy King character.

But there are deeper reasons for five consecutive quarters of declines in 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 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.

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

"This will give them more of an opportunity to develop a compelling menu," Morningstar analyst R.J. Hottovy said.

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 restaurant chain has squabbled over its deeply discounted promotions.

Burger King 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.

Under the terms of Thursday's deal, a 46 percent premium over the company's stock price before rumors of a buyout circulated, 3G Capital Managing Partner Alex Behring will join Chidsey as co-chairman.

The two said the deal has a $4 billion value including debt.

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

Behring has strong ties to Jorge Paulo Lemann, a 71-year-old Brazilian billionaire ranked as the country's third-wealthiest person.

Behring joined the little-known investment firm in 2005 after spending more than a decade working for GP Investimentos, Latin America's largest private equity firm and once owned by Lemann.

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

Still, its investments hint at a strategy of 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 Brazilian retailer and travel agency; 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 Wendy's/Arby's Group Inc. as of May. The stake was worth about $14.3 million, but according to regulatory filings, it had shed that interest by August.

The investment fund's biggest holding is a 4.5 percent stake of CSX Corp., the nation's third-largest railroad. Burger King shares rose $4.73, or 25 percent, to $23.59 Thursday.

A look at some recent private equity buyouts of restaurant chains.

BURGER KING

Date: Announced Sept. 2.

Buyer: 3G Capital

Price: $3.26 billion.

Number of locations: More than 12,100 in 50 states and in 76 countries or territories.

CKE RESTAURANTS

Date: Completed July 12.

Buyer: Columbia Lake Acquisition Holdings, an affiliate of Apollo Management VII LP.

Price: $694 million.

Number of locations: 3,150 Hardee's and Carl's Jr. locations in 42 states.

CAPTAIN D'S SEAFOOD

Date: Completed May 19.

Buyer: Affiliate of Sun Capital Partners.

Price: Not disclosed.

Number of locations: About 540 in 25 states and overseas.

LOGAN'S ROADHOUSE

Date: Announced Aug. 30.

Buyer: Affiliate of Kelso & Co.

Price: Not disclosed.

Number of locations: More than 200 in 23 states.

Source: Associated Press