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Investors take a bite out of Burger King

The King is back on Wall Street.

Burger King returned to the New York Stock Exchange on Wednesday, less than two years after 3G Capital purchased the company and took it private in order to focus on turning around the brand.

While that tranformation is far from complete, this year’s early signs of progress were enough to spark the interest of Justice Holdings. The investment company co-founded by hedge fund veteran William Ackman paid $1.41 billion in a deal that closed Wednesday for a 29 percent share in the Miami fast-food chain. The complex transaction took Burger King Holdings public in a reverse merger through the Justice Holdings shell company.

After Burger King management rang the bell Wednesday at the New York Stock Exchange, the company’s stock opened trading under the ticker BKW at $14.50 per share. During a day that saw nearly seven million shares change hands, the stock went as high as $16.21 per share. It closed at $15.01.

The price is lower than when Burger King last went public in 2006 at $17 per share. While Burger King’s brand recognition remains high, industry experts say investors will want to see proof that the company’s recent results are sustainable.

“I don’t think anybody thought this was going to be a high-flying IPO,” said Dennis Lombardi, a restaurant industry analyst with WD Partners. “This is more of a balance-sheet financial transaction that has little to do with what the consumer experiences.

“It’s a matter of waiting to see if it’s a growth stock or if it’s just going to move with the market,” he said. “Any real significant change in the stock is going to depend on management’s ability to improve the brand.”

That challenge lies with Burger King management, which will remain intact. The deal leaves 71 percent of the company in the hands of 3G Capital, which purchased Burger King in 2010 for $4 billion. No changes are planned in the company’s strategy. The focus remains on expanding Burger King’s menu to appeal to a broader base of consumers, reimaging the North American restaurants and improving service. At the same time, Burger King is aggressively expanding the brand in high-growth countries overseas.

“We’re in a position where the value of the brand is much more than the value of the business,” Daniel Schwartz, Burger King’s chief financial officer, said in a phone interview. “We have a global iconic brand with over 12,500 restaurants operating in over 80 countries. In the U.S., we believe there is a tremendous opportunity to close the sales gap with our peers. Internationally, we can nearly double the brand presence.”

Burger King’s global expansion kicked into high gear last week with the announcement of a deal to open 1,000 restaurants in China over the next five to seven years as part of a joint venture with the Kurdoglu family, a longtime Burger King franchisee in Turkey, and the Cartesian Capital Group, a global private equity firm. The company completed a similar deal recently in Russia and one last year in Brazil.

The international joint-venture deals are part of an overall strategy by Burger King management to reduce the amount of company-owned restaurants and shift toward a completely franchised system with a steady stream of royalty revenues. Based on the success of Dunkin’ Donuts’ public offering, many companies see this model as a key to gaining a higher valuation from Wall Street investors.

It also helps that currently investors have a healthy appetite for restaurant stocks.

“If you are a believer that consumer spending is going to turn around, one of the first places that should show up is in restaurant sales,” said Mark Kalinowski, restaurant industry analyst with Janney Capital Markets. “You’ve got to eat every day and it’s a relatively low average check.”

Burger King’s return to the public markets comes as the company has started 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.

The chain still needs to lure back consumers and regain market share after losing its place to Wendy’s as the country’s second-largest burger chain.

“In the first 18 months, we’ve delivered tangible results,” Schwartz said. “It’s on us to execute. If we deliver on our goals, the stock should be significantly higher in the future.”

About 16 percent of Burger King’s shares will be immediately eligible for trading on the open market, Schwartz said. Justice’s founders have agreed to hold their 13 percent interest for a year and 3G Capital will not trade any stock for six months.

That should help Burger King’s stock price.

“A limited supply relative to demand should keep prices higher,” said Dean Haskell, a restaurant industry consultant with National Retail Concept Partners and a former Wall Street analyst. “Stocks priced in the teens are typically oriented at retail consumer investors.”

A previous version of this article incorrectly states the percentage of shares still held by majority owner 3G Capital.