Burger King (BKC) ceased trading publicly in October 2010 after 3G Capital, a private equity firm, took it private for $24 per share, or approximately $4 billion, and imposed a management shakeup. Ackman paid $1.4 billion to partner with Burger King Holdings. Though the company has had 13 CEOs in the last 25 years, the fast food industry is growing at a 4.7% CAGR over the past 20 years, taking share away from full-service restaurants, as Ackman highlights in his 53-page presentation on the company, “Justice Is a Dish Best Served Flame Broiled.”
More recently, Ackman commented on the merger in Pershing Square’s first-quarter letter.
One of the most lucrative aspects of the company appealing to investors is its potential for global expansion. In June, it announced the launch of its “accelerated growth in China.” This means the opening of 1,000 restaurants in China in the next five to seven years, under a new joint venture with a Burger King franchisee and a global private equity firm.
Global expansion will continue through another joint venture to open several hundred new restaurants in Russia in the next several years and several hundred in Brazil.
Since 2006, Burger King’s revenue has increased from $2.1 billion in 2006 to $2.5 billion in 2010, after a slight decline in 2009. Cash flow was negative in 2006, increasing each year to $182 million in 2010.
In the first quarter, an expanded menu, global expansion and a national advertising campaign helped net income to improve to $25 million after a $5.9 million loss for the prior-year period, with improved results in all of its operating segments.
Ackman believes that 13 to 16 times EBITDA Capex is a reasonable valuation for the company. As of April, he believed the company has the potential to trade between $26 and $41 per share by 2016, depending on how its global expansion and domestic turnaround goes. The stock rose 2.26% since it began trading and opened for $15.99 per share on Monday.
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