Burger King Buyout Looks Better After Big IPO For McDonald's Franchisee ?

Last September, 3G Capital Management stunned the market with a rich takeover bid for Burger King that was considerably higher than analysts expected.

Questions over why the hedge fund — backed by Brazilian billionairesJorge Paulo Lemann, Marcel Hermann Telles and Carlos Alberto Sicupira — was willing to shell out $3.3 billion for the chain may find some answers in this week’s initial public offering of Arcos Dorados.

The largest franchisee of McDonald’s restaurants, which operates stores across Latin America and the Caribbean, Arcos Dorados priced shares at $17 apiece to raise $1.3 billion then got a nearly 25% first-day pop. Burger King’s presence in the rapidly-growing Latin American market is a marble compared to the bowling ball Arcos Dorados wields, but 3G Capital expressed the intent to ramp up international expansion when they agreed to take the chain private last year. (See “What’s On The Menu For Restaurant Takeovers?”)

Read: The IPO Class Of 2011

Arcos Dorados is a franchisee and operates 1,755 stores. By comparison, at the time of the buyout Burger King  had just 93 Brazilian locations, and 3G Capital had laid out plans to add an additional 500 Latin American restaurants over five years.

Arcos Dorados CEO Woods Staton and other investors paid $698 million to carve out McDonald’s’ Latin American business in 2007 and have since seen net income quadruple. If 3G Capital has similar success in its expansion efforts with Burger King, the rich price it paid last year may wind up a bargain. Now it’s down to execution

source: forbes.com

Posted in: Market