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Investors Eye Burger King Value

31 Aug 2002

Citibank and J.P. Morgan's $1 billion credit facility for Burger King is garnering interest among buysiders as the mid-September launch date approaches. Some investors cited the experience of the Texas Pacific Group, Bain Capital and Goldman Sachs Capital Partners, which are purchasing the fast-food behemoth from Diageo for $2.26 billion. "Diageo has been bleeding [Burger King] for cash and is now spinning it out to a massively enthusiastic sponsor group," one banker said. "It will come out of the blocks doing well."

Some investors, however, have raised eyebrows over the amount of leverage and the size of the $700 million "B" tranche. With EBITDA of approximately $310 million, the ratio of senior debt to EBITDA is approaching three times and total debt is approaching 4.5 times, an investor noted.

But the banker rebuffed those concerns, noting that Burger King has very stable cash flow and is an uncomplicated business. "What needs to happen for the business to be worth less than three times the EBITDA?" he asked. "Jack In The Box had a huge E. coli outbreak a few years ago that killed their customers, but it is now doing well."

The acquisition is expected to close in the fourth quarter. A J.P. Morgan spokesman declined to comment, and a Citi spokeswoman could not provide further details, such as the date of launch and potential pricing, by press time. Bennett Nussbaum, cfo of Burger King, did not return calls.

31 Aug 2002