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Burger King To Go Public

Burger King Corp.'s parent company said Wednesday it plans to sell shares to the public for the first time in the fast-food chain's 52-year history, part of its attempt to recoup ground lost in fierce competition with rivals McDonald's Corp. and Wendy's International Inc.

Burger King Holdings Inc. plans to file with the Securities and Exchange Commission for an initial public offering in late February or early March, Chairman and CEO Greg Brenneman said in a long anticipated announcement. Standard & Poor's estimated the IPO would be for at least $600 million.

"Our goal has always been to take Burger King public," Brenneman said in a statement. "We believe the transparency and stability in ownership offered by being a public company will benefit our employees and franchisees for years to come."

The Miami-based company declined further comment citing U.S. securities law. Owen Blicksilver, a spokesman for the three private equity firms that own the chain, also declined comment.

Standard & Poor's said it placed Burger King's B+ rating for on CreditWatch for possible upgrade after the announcement.

The "company has the opportunity to further improve operating performance over the next few years through menu changes, further strengthening of store execution and advertising, and expanding store hours," credit analyst Diane Shand said.

But she added that progress could be "slow and uneven" because of intense competition in the industry.

Restaurant industry consultant Allan Hickok said Burger King's timing was right, considering the success last week of McDonald's spin-off of Chipotle Mexican Grill Inc. Its shares doubled on their first day of trading.

"You have to hit the public markets when they're receptive. Right now, I think you have a very favorable market environment. Several successful IPOs. Most recently you had Chipotle, which went ballistic," he said.

But Burger King's troubles probably mean that it won't command that high of a price for its IPO, said Janna Sampson, director of portfolio management at OakBrook Investments in Lisle, which owns $31.6 million of McDonald's stock.

Of the top three burger chains, only Burger King has never reaped the benefits of being a publicly traded company. Burger King was long the second-largest hamburger chain behind No. 1 McDonald's, but it fell into a tie for No. 2 with Wendy's in 2004, according to research firm Technomic Inc.

Officials at McDonald's and Wendy's didn't return messages seeking comment.

The equity firms, Texas Pacific Group, Bain Capital and Goldman Sachs Capital Partners, bought Burger King in 2002 for $1.5 billion with hopes of ending a period of slumping sales. The price was reduced from the initially agreed $2.26 billion because of Burger King's troubles.


They appointed new leadership, but the sales declines continued initially. Burger King doesn't report exact sales figures, but Technomic estimated that its U.S. sales were $7.7 billion in 2004, down more than 2 percent from $7.9 billion in 2003.

Brenneman was brought in to revitalize the chain in August 2004, becoming the company's 10th CEO in 15 years. The turnaround specialist was known for helping lead Continental Airlines Inc. out of bankruptcy and into profitability.

Under Brenneman, the company launched several new products that were popular and an aggressive advertising campaign targeting its "Superfans," young men who eat frequently at the chain. Burger King will advertise on the Super Bowl broadcast for the first time in a decade on Sunday, with a one-minute spot that will also be sent to owners of Sprint cell phones that show video.

Brenneman credited the ad campaigns and an increasing focus on customer satisfaction as among the reasons that same-store sales, or sales at stores open at least a year, finally grew.

Despite reports that sales fell last June and July, the company said this month that it has registered seven consecutive quarters of same-store sales increases. Same-store sales in the second fiscal quarter were 2.3 percent higher than the year before, the company said.

The sales growth was welcome news for independent franchisees, who own about 90 percent of Burger King's more than 11,000 restaurants. Several large franchisees filed for bankruptcy over the past decade, burdened with debt.

An IPO should help Burger King continue the growth, said Alan Vituli, chief executive of Carrols Corp. of Syracuse, N.Y., the chain's biggest franchisee with 340 restaurants.

"I think it'll be terrific for the brand. It'll give it a great capital structure," he said, praising Burger King management for its work in a competitive environment. But he acknowledged that "winning back share of market is a long, slow climb."

Burger King's relationship with some of its franchisees has also soured in recent months. The chain cut its ties in October with the National Franchisee Association. The disputes have reportedly been about what some restaurant owners say is Burger King's attempts to exert too much control over them. The company says it is only trying to do what is best for the brand.

The two sides have been in talks since then to patch things up, but the franchisee association's board resigned in protest last month. Leaked letters between the two sides have shown that the arguments have been testy.

"Of the three brands, Burger Kings notoriously has the most strained relationship with its franchisee community in part because of who's owned the brand," Vituli said.

British liquor conglomerate Diageo PLC sold the chain to its current owners to focus on its core business. The move was welcomed by franchisees, who felt Burger King got lost in Diageo's large portfolio. Burger King has been owned by other companies since 1967, when Pillsbury Co. bought it.

Burger King was started in 1954 with one restaurant in Miami. Co-founders James McLamore and David Edgerton opened several more restaurants in the Miami area, but they struggled until the launch of the Whopper sandwich, McLamore wrote in a book about the chain.

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