Struggling Burger King swallowed by 3G Capital

Published on Wednesday 1 September 2010 21:07

FAST food giant Burger King has been swallowed by private equity firm 3G Capital in a deal valued at $3.26 billion (£2.1bn).

It comes as the burger chain faces stiff competition from market leader McDonald's, which has fared better than its rival since the onset of the downturn.

Buyer 3G Capital, run by Pavel Begun and Cory Bailey, is a little-known private equity outfit, based in New York, which prides itself on low-risk investments.

Analysts said Burger King would have a battle on its hands to see off the threat from Mcdonald's and from smaller bespoke outlets which are poaching Burger King customers.

One of Burger King's core markets, men between 18 and 34, are notoriously fickle in their spending habits, and have been hit by increased unemployment over the past two years.

Bob Goldin of food consulting group Thechnomic said: "McDonald's is just eating their lunch. 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."

Burger King has 12,100 branches in 70 countries. The company became public in 2006 four years after a buyout from a consortium of investment firms.

The consortium - TPG Capital, Bain Capital Partners and Goldman Sachs Funds - still owns 31 per cent of Burger King's outstanding shares and has agreed to tender its shares in the deal.

Analysts said the offer of $24 a share looks like a good deal for shareholders and represents a 46 per cent premium to Burger King's share price before talk of a deal emerged on Wednesday.

Telsey Advisory Group analyst Tom Forte said: "It looks like a good price for Burger King shareholders. I don't anticipate that someone is going to come in higher."

Under the terms of the deal with 3G, which will be finalised at the end of 2010, Burger King's chairman and chief executive John Chidsey will become co-chairman of the board. 3G managing partner Alex Behring will be the other co-chair.

The investor will also take on Burger King's debts - making the deal worth $4bn in total.