The announcement comes a little more than a year after Burger King was taken private by 3G Capital in October 2010.
Under the terms of the agreement, 3G Capital will retain a 71-percent stake in the Miami-based burger company in what company officials are calling a “business combination agreement” with Justice Holdings Ltd., originally based in London.
After the deal closes, the combined company will be named Burger King Worldwide Inc. Justice Holdings shares will be suspended from trading on the London Stock Exchange and the newly formed company will begin trading on the New York Stock Exchange, Burger King said.
Justice Holdings was created in an initial public offering in February 2011 by a group that included billionaire Nicolas Berggruen, along with Martin Franklin, executive chair of global consumer product company Jarden Corp., and William Ackman, chief executive of hedge fund Pershing Square Capital Management.
That IPO created a shell company with the goal of consummating a business combination deal in the $5-billion to $10-billion range, according to the company’s website.
In a statement, Berggruen said, “We looked at many different opportunities over the last 14 months, but Burger King stood out as a unique global player in the expanding international quick-service restaurant industry with a strong heritage and an aggressive transformation underway in its North American business unit.”
The news comes the same week Burger King launched its most extensive menu update since the chain was founded in 1954. The menu overhaul was part of an ongoing four-tier strategy to improve results at the 12,400-unit chain, which recently slipped to No. 3 among U.S. burger brands in terms of sales, behind Wendy’s, though both remain far behind category leader McDonald’s.
After Burger King’s most recent earnings report, company officials said turnaround efforts over the past year were taking hold and once-declining same-store sales among the chain’s 7,200 North American locations were expected to turn positive for the first quarter of 2012.
Bernardo Hees, Burger King chief executive, said in a statement that the chain’s long-term strategy will remain in place following closure of the deal – as will its senior management team.
“In partnership with our new public shareholders, we will continue to focus on creating profitable growth for our franchise system, while delivering best-in-class food and service for our guests,” he said.
Daniel Schwartz, Burger King’s chief financial officer, said, “We believe it is the right time for Burger King to be publicly traded in the U.S. again.”
The transaction is expected to close in 60 to 90 days.
Franklin, one of the Justice co-founders who will join the combined company’s board, said Burger King “is still at an early stage of its true potential, and [we] believe that over the next three to five years, the U.S. turnaround and international growth franchise model can lead to significant margin expansion and free cash flow growth.”
Justice Holdings officials said the Burger King deal offered key features the shell company was looking for: strong cash flows; an experienced and successful management team; significant strategic growth opportunities; and “it was a company that would benefit from Justice’s public ownership,” said Lord Myners, the independent chair of Justice Holdings’ board of directors.
Ackman of Pershing Square said he brought the deal to Justice Holdings, noting 3G Capital’s success with other investments, including beer maker Anheuser Busch. Since acquiring Burger King, Ackman estimated the chain’s earnings before interest, taxes, depreciation and amortization, minus capital expenditures, has increased from $320 million in 2010 to $503 million last year. Results for 2012 are expected to be nearly double that of 2011, he projected.
Ackman also noted that he has invested in 3G Capital’s private equity funds. To avoid any actual or perceived conflict of interest, he said 3G Capital will make an in-kind distribution of shares in Burger King reflecting his proportionate interest in the private equity fund.
Ackman said he will receive stock and no cash from the transaction, but his personal stake in the company will significantly increase through Pershing Square, which will own a roughly 10-percent stake in the combined company.
Also joining Burger King’s board as a result of the transaction will be Alan Parker, one of Justice’s board members, a former chief executive of Whitbread PLC, the U.K.’s largest hotel and restaurant company.
Berggruen’s investments run the gamut, from Germany’s Karstadt chain of department stores, to real estate and energy companies around the world.
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