Burger King Owner To Buy Chain’s Biggest US Franchisee for $1 Billion

Restaurant Brands International will spend $1 billion in cash to buy Carrols Restaurant Group, which is the largest U.S. franchisee of Burger King, reports CNBC.

The news about this purchase comes a year after Restaurant Brands shared its scope to spend $400 million to turn around Burger King in the U.S. This deal is expected to be completed by the end of the second quarter of this year.

Burger King has been struggling to keep up with the competition, specifically Wendy’s, which “overtook it as the second-largest burger chain by U.S. sales.” This comeback strategy involves investing in reviving the restaurant and giving a boost to advertising to increase demand and franchisee profits.

According to Tom Curtis, president of Burger King U.S. and Canada, Restaurant Brands aims to give 600 of Carrols’ Burger King locations a makeover in the next five years and then sell them back to franchisees.

Carrols, which runs more than 1,000 Burger King restaurants and 60 Popeyes locations, will be acquired for $9.55 per share by Restaurant Brands. On Friday, Carrols’ stock closed at $8.42, with a market value of $459 million, and the company’s shares spiked by over 12% in pre-market trading after the news broke on Tuesday.

The announcement of this deal is a transitional one for Burger King’s strategy, as its restaurants have always been predominantly franchised for the last 10 years with only 175 locations that are wholly owned.

Speaking to investors on a conference call on Tuesday, Restaurant Brands CEO Josh Kobza said, “This will allow us to really focus our attention on accelerating remodels and being thoughtful about how to refranchise this restaurant network into smaller packages, with new and existing franchisees who live close to the communities where they own the restaurants.”

The company plans to allocate around $500 million, financed through Carrols’ operational cash flow, to pay for the refurbishments.

Speaking to CNBC, Curtis said, “I’ve always been a big believer in the network effects, getting an entire portfolio remodeled.” He added, “I think that when consumers see that across the market consistently, it helps with recruiting, it helps with staffing the restaurants, it helps with the overall image and perception of the brand.”

Discussions on how the chain can remodel 120 restaurants per year will be kicking off as soon as today.