Burger King will return to the New York Stock Exchange Wednesday. But at least initially investors will only have a small chance to own a bite of the Whopper.
Instead of a typical initial public offering, Burger King will become a public company once again as part of merger agreement finalized Wednesday with Justice Holdings Limited, the former publicly-traded London investment firm. Burger King effectively merges into the Justice corporate shell, which ceased trading on the London Stock Exchange and created a new Delaware-based holding company. That begin trading at the opening bell on the New York Stock Exchange under the name Burger King Worldwide with a listing under the symbol BKW.
Burger King was previously a public company from 2006 until 2010 when it was purchased by 3G Capital. The investors took it private in order to focus on turning around the business without the scrutiny of hte public markets.
The deal gives 3G Capital more than $1.41 billion in cash in exchange for the 29 percent share of the Miami fast-food chain that will go to the owners of Justice Holdings. Last week, the cash payout was increased by $891,276 based on stock options exercised by 3G Capital holders, according to filings this week with the Securities and Exchange Commission. The owners of 3G Capital retain 71 percent of the new company and no changes are planned for Burger King’s management team.
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But because of the various holding companies involved in the transaction, the arrangement is so confusing that the SEC filings include two sets of flow charts. While the transaction is part of a special purpose acquisition company allowed under SEC rules, it’s not a format that tends to be very inviting for typical investors.
“This is the textbook definition of obfuscation,” said David Menlow, president of ipofinancial.com, a research firm that specializes in public offerings. “Investors don’t want to have to have an attorney present to know what it all means to me. When you come through the back door without underwriter participation, the stocks generally languish.”
Burger King spokesman Miguel Piedra said Tuesday he could not provide any details beyond the company’s public filings due to the restrictions of a pre-IPO quiet period imposed by the SEC.
Justice partner and New York hedge fund manager William Ackman, who runs Pershing Square Capital Management, was already a partner in 3G Capital and sold the owners on the benefits of avoiding the long, traditional IPO process and the market instability. The deal was attractive because it allows 3G Capital’s private-equity investors to recoup the initial investment required for the $4 billion purchase of Burger King in 2010, when the company moved off the stock market and went private.
The holders of Justice’s London based company will receive one share in the new Delaware holding company that will in effect become Burger King’s parent company. A total of 349.9 million shares will be issued in Burger King Worldwide.
Justice’s founders will hold about 13 percent of the new Burger King, while the Justice regular shareholders will control about 16 percent of the common stock.
The only shares that could change hands during the first six months are some of that 16 percent held by Justic shareholders. . The owners of 3G Capital have pledged not to sell any stock for six months after the transaction. Justice’s founders will wait one year before selling any shares.
The return to the public markets come as Burger King is starting to see progress in its turnaround efforts. During the first quarter of 2012 sales at North American restaurants grew 4.2 percent, the first positive growth in more than two years. The increase in this key measurement helped Burger King turn a net profit of $25 million for the quarter ending March 31, compared with a loss of $5.9 million during the same period last year.
But Wall Street analysts who got burned by Burger King in its last go round as a public company remain skeptical and say they will take a wait and see approach based on what kind of results the chain delivers.
“My concern is whether the sales momentum is sustainable,” said Steve West, restaurant industry analyst with ITG Research, who last month initiated coverage of Burger King in preparation for the IPO. “They have never proven they can do something on a long-term basis.”