PE backed takeovers subject to EU Competition law: Burger King

The European Commission has approved the acquisition of US-based fast-food chain Burger King by US investors TPG Advisors III, The Goldman Sachs Group and Bain Capital Fund VII. The transaction will bring Burger King into the same group as Domino’s Pizza, but Burger King will continue to face competition from a wide range of rival food chains.

Burger King is active worldwide in the quick service restaurant industry through over 10,000 franchised or company-owned restaurants and outlets. It is a wholly owned indirect subsidiary of UK-based beverages group Diageo plc.

The transaction was notified to the Commission on September 12 for regulatory clearance in Europe. Investor Bain Capital also has interests in the same sector since it retains an interest in pizza home delivery company Domino’s.

Considering Bain Capital’s interest in Domino’s home delivery services, the parties have overlapping activities in a number of member states (Denmark, Germany, Ireland, The Netherlands, Spain and the UK.) However, the parties’ combined share of sales remains below 15 per cent in all cases.

Burger King continues to face competition from McDonald’s, Quick, KFC and Pizza Hut, in addition to various national quick service restaurants. But the Commission’s market investigation did not identify any competition concerns.

On August 19, 2002, the US antitrust regulators granted early termination of the waiting period applicable under US merger control rules, thereby clearing the transaction in the US.

The consortium is rumoured to be struggling with the financing for the buyout. It had planned to raise around $1.66 billion for the debt component of the transaction, of which $500 million was to be raised in the high yield bond market and the remainder from banks. Adverse market conditions and a dip in performance by Burger King have complicated the process and the consortium may seek a renegotiation on price.