Two and a half years of uncertainty about Burger King's future is likely to end today.
The fast-food chain's parent, Diageo PLC, is expected to announce that it has closed on a $1.5 billion deal to sell Burger King to a buyout team led by Texas Pacific Group for about a third less than anticipated, according to sources familiar with the transaction.
The sale would come a month after the same buyout team of Texas Pacific, Bain Capital and Goldman Sachs Capital Partners scrapped the original $2.26 billion deal. That agreement fell apart because the banks refused to provide the debt financing, at the same time the fast-food industry's price wars began to cut into Burger King's sales.
Diageo is expected to guarantee the bank loan for the largest piece of the deal's financing and may also provide financing for another portion of the purchase price, sources said.
This time, Diageo doesn't intend to wait months between signing the deal and closing the transaction. Both events are expected to take place the same day, perhaps simultaneously.
Burger King executives and spokesmen for Diageo and Texas Pacific all declined yesterday to discuss anything regarding the sale.
While the sale price will be far less than the deal announced in July and nowhere near the more than $3 billion that Diageo once envisioned, the market has changed significantly. McDonald's and Burger King are locked in a nasty price war that is raising concerns about profits, which has led even Wendy's to say it will not make earnings targets.
A $1.5 billion purchase price would put the deal at about five times earnings before interest, taxes, depreciation and amortization, less than the multiples of McDonald's and Wendy's stocks.
The significant drop in the sale price also is expected to be reflected in a bonus cut for Burger King Chief Executive Officer John Dasburg.
He was to receive a $20 million windfall if he got a "high" price for the sale of the fast-food chain, believed to be something over $2 billion. Now, that bonus is likely to be reduced to something below $10 million, sources said. Some portion of it also is to be shared with Dasburg's senior management team.
Bringing closure to the sale will be a welcome relief for everyone from Burger King's management team to employees and franchisees.
"Once they put the transaction behind them, they can put their attention back on improving the stores and operations," said Allan Hickok, a restaurant industry analyst with U.S. Bancorp Piper Jaffray.
Burger King has lived with uncertainty since July 2001 when Diageo first announced plans to sell up to 20 percent of the burger chain in a public offering.