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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)
By Quentin Webb
LONDON, April 4 (Reuters Breakingviews) - Burger King’s newest backers are getting a Whopper of a finder’s fee. The biggest rival of McDonald’s (MCD.N) in the hamburger wars will return to the U.S. equity markets via a $1.4 billion tie-up with Justice Holdings JUSH.L, a London variant on the “special purpose acquisition company” (SPAC). Justice’s founders get roughly $165 million for cooking up the deal.
Brazilian investors 3G Capital are selling a bit less than 26 percent of Burger King to Justice - implying a total equity value of about $5.5 billion. That’s a good deal meatier than 3G’s $4 billion buyout in 2010. If the relisted New York shares climb, 3G will do even better.
It’s important to note that today’s fatter valuation isn’t really about selling out for a higher earnings multiple: 3G is more of an operational whiz than classic private equity and has greatly improved cash generation. That helps explain the bigger price here. The Whopper-maker’s EBITDA minus capex nearly doubled in two years, for example.
An equally striking aspect of the deal, however, is the tasty reward it promises to Justice’s three founders, financiers Nicolas Berggruen and Martin Franklin and hedge fund manager Bill Ackman. Justice’s 900 million-pound listing last year formed part of a mini-wave of cash-shell flotations. Most prominent were two Nat Rothschild-backed vehicles that now languish below their float prices. Like Rothschild’s deals, Justice promised its founders private equity-style rewards to strike a deal and then grow the enlarged company.
The canny 3G has curbed the scale of the Justice founders’ reward scheme, which could have turned a symbolic 30,000-pound investment into 6.67 percent of Burger King’s shares post-deal and 15 percent of later value created. It’s been sliced to a plain 3 percent of Burger King’s stock – though that is still worth $165 million.
Of course, the founders of Justice deserve a payday. They created the vehicle, found this deal, and provided plenty of Justice’s ordinary share capital. Ackman’s hedge fund, Pershing Square, bought almost a third of Justice’s stock at IPO. And it may be that some of the $165 million rewards may flow to others, since the special shares sit in vehicles that may have other shareholders. That may apply especially to Ackman, whose “founder shares” are held by some of his hedge fund’s entities.
All that said, it’s a big chunk of change, equivalent to more than 10 percent of the amount Justice raised in its London IPO. That kind of money would buy a lot of cheeseburgers.
- On April 3, Burger King, the fast-food chain that went private nearly two years ago, said it had agreed to merge with Justice Holdings, a London-listed acquisition vehicle, and planned to subsequently list on the New York Stock Exchange.
- Justice will pay $1.4 billion to Burger King’s main shareholder, 3G Capital, the investment group backed by Brazilian financier Jorge Paulo Lemann. In return Justice and its founders will receive a 29 percent stake in the enlarged group. Of that stake, 3 percent will go to Justice’s three founders, Nicolas Berggruen, Martin Franklin and William Ackman, who floated the vehicle in February 2011, raising 900 million pounds.
- Burger King statement (pdf): link.reuters.com/xub57s
- Reuters: Burger King to go public again [ID:nL2E8F3FCI]
Tony Hayward's return [ID:nL4E7MT2J6]
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(Editing by Rob Cox and Martin Langfield)
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