Burger King’s IPO

IBD looks at Burger King’s IPO:

THE BUZZ
Unlike last year, 2006 is set to produce some massive, high-profile initial public offerings. And while the terms for Burger King’s IPO are still in the works, the deal should be — if you’ll pardon the expression — a whopper.
Burger King’s rivals have certainly been busy. McDonald’s scored a hit when it did a partial spinoff of Chipotle Mexican Grill in January.
Wendy’s is planning a similar spinoff of Tim Hortons sometime next month.
Now comes the debut of the world’s second-largest fast-food operation. The main question will be how much investors believe in the financial turnaround engineered by Burger King’s new chief executive, Greg Brenneman.
When the company filed its prospectus on Feb. 16, analysts could look at the numbers in detail for the first time.
“The balance sheet is nothing to write home about,” said Francis Gaskins, president of IPOhome.com. “But they’ve turned it around on an operating basis. That’s the interest here.”
THE COMPANY
Burger King was founded as a drive-up hamburger stand in 1954. Three years later it rolled out its trademark Whopper.
In 1967, after much growth, the company was bought by the Pillsbury Co., which in turn was bought by Grand Met in 1989.
A still bigger fish, Diageo, came in and swallowed up Grand Met. Diageo is a British beverage company that owns venerable booze brands such as Gordon’s, Smirnoff, Johnnie Walker and Jose Cuervo.
It was an odd fit for a U.S. fast-food giant, and Burger King suffered an identity crisis. Between 1989 and 2002 the chain went through eight chief executives and drifted out of the limelight.
In 2002 a group of equity investors — led by Texas Pacific Group, Bain Capital Partners and the Goldman Sachs Funds — bought Burger King. What they found was financial chaos.
More than a third of Burger King’s North American franchisees were over-leveraged, and its largest franchisee declared bankruptcy.
In 2004 the investment group tapped Brenneman, a turnaround specialist, to head Burger King.
Brenneman wasted no time shuffling the deck. On his watch Burger King has closed more than 800 underperforming restaurants, written off some $106 million in franchisee debts and experimented with aggressive discounting.
By last year Burger King’s finances were improving.

Posted by on February 28th, 2006 at 10:14 am


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