If 3G Capital completes its $4 billion acquisition of Burger King this fall, its challenge is this: Burger King could sell McDonald’s food at McDonald’s prices and still sit in second place among burger chains. McDonald’s has worked on elevating its brand while Burger King has focused on improving operations.
In terms of brand value, Burger King isn’t even in second place. BrandZ’s 2009 ranking of brands’ worth puts Burger King in the number 9 spot among quick-service restaurant companies, valuing its brand at $1.767 billion. McDonald’s is No. 1, valued at $66 billion. That’s gap is either room for improvement or an impossible-to-narrow crevasse, depending on how one looks at it.
Burger King is limited by lingering perception of it as a “fast food” chain as much as it is hampered by its male-centric menu, its throwback décor and creepy king-character marketing. McDonald’s, Wendy’s, Jack in the Box and others have better managed to extricate themselves from the plastic “fast food” classification and have moved into the 21st century.
However, Burger King has made some significant operations improvements (including rollout of new broilers) under Chairman-CEO John Chidsey, but comp sales keep coming up negative (-2.3% globally in fiscal 2010).
What 3G undoubtedly sees is room to further refine Burger King’s systems so that they are more efficient. That could make Burger King more profitable, but will it make the chain more competitive. A Wall Street Journal story said 3G and its backers are “looking at Burger King as a long-term investment.” That’s good; brands change slowly.
Burger King announced that Chidsey, will remain CEO through a transition period, then assume the new post of Co-Chairman of the Board. Alex Behring, 3G Capital managing partner of 3G Capital, also will serve as Co-Chairman of the Board of the Company, alongside Chidsey.
httpvh://www.youtube.com/watch?v=fcgXUzNEIO0According to a Bloomberg report, Behring hardly brings foodservice or retail experience. It identifies him as a “leader of America Latina Logistica SA, a Brazil-based holding company for railroad logistical services. He joined 3G in 2005 after spending 10 years at GP Investments, a Latin American private-equity firm.” I’d guess that he’ll watch financials more closely than french fries at BK.
The $4 billion deal pays $24 a share for Burger King Holdings, a tidy 46% premium over Burger King’s $16.45 closing price on Aug. 31. If anyone wants to top 3G’s offer, they have until October 12 to come forward.
For additional reading on restaurant-sector M&A activity, Mark Kalinowski, analyst at Janney Montgomery Scott, kindly shares this link to an article in The Deal.