Brand king, Tricon, eyes purchase of Burger King

April 21, 2002

NEW YORK -- Diageo Plc is seeking bids of more than $2.3 billion by the end of this week for its Burger King property. London-based Diageo, the world's largest distiller, is selling the burger chain to focus on its beverage businesses.

According to, notable among several possible buyers are Bain Capital Inc., parent company of Domino's Pizza, and Tricon Global Restaurants Inc., owner of Pizza Hut, KFC and Taco Bell.

Just six weeks ago Tricon announced an agreement to purchase Lexington, Ky.-based Yorkshire Global Restaurants, owner of hamburger chain A&W All American Food and Long John Silver's Seafood. Tricon also has a limited, 10-store cobrand agreement with Backyard Burgers, a 107-store chain headquartered in Memphis, Tenn.

"Once they get out of their last non-beverage business they will be able to really focus on beverages," said Tom Russo, partner with Gardner Russo & Gardner, which manages $1 billion and has about 3 million Diageo shares. "This is the last piece."

Spokespersons for Bain, Tricon and other possible buyers, Blackstone Group LP, Texas Pacific Group and Thomas H. Lee Partners LP, all declined to comment.

Selling Burger King for $2.3 billion, or seven times cash flow, would be in line with the $320 million Tricon paid for Yorkshire's brands, according to Mark Kalinowski, a restaurant analyst with Salomon Smith Barney Inc.

Still, both Wendy's International Inc. and McDonald's Corp. trade at higher multiples. Wendy's market value is 8.4 times 2001 EBITDA, while McDonald's is at 10.7 times, according to Kalinowski.

"In general, people would make the argument Burger King isn't as strong a brand as McDonald's and Wendy's," said Russo.

Burger King's share of the U.S. hamburger market fell to 18.8 percent in 2000 -- the most recent period for which information is available -- from 20.4 percent in 1998, according to Technomic Inc., a Chicago consultancy. The market, dominated by McDonald's Corp. at 43.1 percent, was $45.4 billion in 2000, the firm said.

John Dasburg, chairman of Miami-based Burger King, has had talks with San Francisco-based Texas Pacific about a purchase of the company. The firm has also talked to the National Franchisee Association about a possible Burger King buyout, said Julian Josephson, chairman of the group.

Boston-based Bain paid about $1 billion in 1998 for a 93-percent share of Domino's, headquartered in Ann Arbor, Mich.

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