At two in the morning on September 2, 2010, the 37th
floor of 600 Third Avenue was dark except for the boardroom. At one
end, 3G Capital’s chief financial officer was arranging papers across
the conference table. At the other, two junior lawyers checked
signatures under the hospital lights.
Burger King’s board had agreed to sell the company for $4.1 billion
to 3G Capital, but the firm was obscure enough that the previous day The Wall Street Journal had mistaken it for a different company entirely. The deal would be one of the largest buyouts since the financial crisis.
Outside, Manhattan’s towers blinked in the late summer heat. Three
hours earlier, across the river in Queens, Andy Roddick had been knocked
out of the US Open by an unseeded player in the second round. Somewhere
in the city, he was probably still awake.
So was Daniel Schwartz, sitting in an airport hotel room in Miami
with a phone to his ear. He was 29 years old, a partner at 3G, and he
had until the New York Stock Exchange opened in seven hours to secure
$2.4 billion in debt financing. At six in the morning, as planes began
flying into the sunrise over Biscayne Bay, the lawyers in New York
confirmed the documents were set.
The debt remained a problem, as it had been since 3G began talks with
Burger King in March. It was 2010, the scars of the financial crisis
were still raw, and in Europe, fresh wounds were opening by the week.
Schwartz got married in May, though there was little time to celebrate.
Greece needed rescuing by the IMF and EU, which unsettled markets and
cast doubt on the eurozone itself. The kind of loan 3G needed to make a
deal like this work all but disappeared.
By late summer, JPMorgan agreed to split the financing with Barclays.
They would each lend $1.2 billion. The deal was progressing quietly
until Wednesday, September 1, when The Wall Street Journal
reported that 3i Group, a private equity firm based in London, was
buying Burger King. The stock jumped 15%. 3i’s spokeswoman jumped
higher. “We’re not talking to Burger King, we have no interest in the
company, and we’re not sure where this has come from.”
The New York Stock Exchange halted trading and called John Chidsey,
Burger King’s chairman and CEO. He had until Thursday’s opening bell at
9:30am to announce a deal or dismiss the rumors. Which was why, at two
in the morning, the lawyers were still at it on the 37th floor. And why
Schwartz, who still hadn’t slept and still hadn’t been on his honeymoon,
was trying to get signatures from both banks before the market opened.
Alex Behring, 3G’s co-founder and managing partner, had flown to
Miami with Schwartz on Wednesday. At 9am on Thursday, he stood with
Chidsey in a conference hall at Burger King’s headquarters on Blue
Lagoon Drive, a burger flip from Miami airport and Schwartz’s hotel
room. Several hundred employees had gathered to hear an announcement.
The market opened in 30 minutes.
Behring called Schwartz.
“Can we go?”
“No,” Schwartz replied. “The banks still haven’t signed the commitment papers.”
Behring and Chidsey stood at the front of the room. A sea of eyes
fixed upon them. After 15 eternal minutes, Schwartz called back.
“We can go.”
Burger King shares rose 25% to $23.59. The deal, a take-private
acquisition priced at $24 per share, was a 46% premium to the stock
price before rumors began circulating on Tuesday. It did not take long
for analysts to weigh in. “The valuation is based on good fundamentals,”
Reuters noted, “which Burger King does not have.”
The deal included a “go shop” provision that allowed Burger King to
solicit a better offer from other buyers over the course of the next
month. Nobody expected another bid, and none came.
Since Burger King’s founders had sold the business in 1967, the
company had cycled through four owners and 19 CEOs. Franchisees were
suing the business over a dollar double cheeseburger that cost them
money with every sale. Growth and profitability trailed the industry,
and Burger King’s shares had underperformed those of McDonald’s by 49%
since the end of 2008.
Even people on their own side had questions. Paul Fribourg had spent
his entire career in food and agriculture. He was CEO of Continental
Grain, and served on the boards of Estée Lauder and Loews. He had known
3G’s founders for 40 years, and Behring since he arrived in New York to
set up the firm in 2004. When Behring called about Burger King, Fribourg
cut to it.
“Come on Alex,” he said. “You’re Brazilian. You’ve never worked in
the US. You don’t know anything about the fast food industry. What are
you going to do that these really smart American investors haven’t
already done?”
The smart Americans were Goldman Sachs, Bain Capital, and TPG. They
had acquired Burger King in 2002 from Diageo, taken it public in 2006,
and made multiples of their money along the way. In 2007, they began
selling down their stake, having—surely—taken all the meat off its bone.
In the carcass everyone assumed Burger King to be, Behring and
Schwartz saw a business that would not die. It kept surviving its
owners! And not just surviving. It had become the world’s second-largest
hamburger chain. Schwartz sought outside counsel from his mother and
fiancée. He asked them how big Burger King was relative to McDonald’s.
They each said half the size. The actual number was one-sixtieth. The
brand was bigger than the business. If they could fix some obvious
problems—like not selling cheeseburgers at a loss—they’d make money.
Their model projected they would triple their money in five years.
“I honestly didn’t believe they could do what they were saying,”
Fribourg told me. “But I liked Alex, Daniel, and their partners, so we
wanted to give them a shot.” He wrote a check.
Fifteen years later, the investment is up nearly 30 times. Burger
King is now one piece of a $45 billion public business Behring and
Schwartz have built: Restaurant Brands International (RBI). 3G owns a
quarter of it. The annual dividend alone is four-fifths of what they
paid for Burger King in 2010. It may be the greatest private equity deal
in history, and they have no plans to exit.....
