By JOE NOCERA
Published: June 22, 2012
Burger King, the Cash Cow

http://www.nytimes.com/2012/06/23/opinion/nocera-burger-king-the-cash-cow.html?nl=todaysheadlines&emc=edit_th_20120623

Earlier this week, a well-known company went public in a complicated transaction that involved a handful of Wall Street sharpies and a mysterious investment vehicle called a SPAC. The company was Burger King.
Financial engineering has been part of the Burger King story for so long that it’s hard to believe there is still anything worth plucking from its carcass. “It’s been run as a cash cow for Wall Street,” said Bob Goldin, an executive vice president of Technomic, a food service consulting firm. Along the way it’s had 13 chief executives in 25 years,....

Enter — ta-da! — private equity. In 2002, Goldman Sachs, along with two private equity firms, TGP and ... hmmm ... Bain Capital, teamed up to buy Burger King.

But the private equity investors also cut themselves an incredibly sweet deal. Their $1.5 billion purchase price included only $210 million of their own money; the rest was borrowed. They immediately began taking out tens of millions of dollars in fees. Four years later, they took Burger King public. But, first, they rewarded themselves with a $448 million dividend. In all, according to The Wall Street Journal, “the firms received $511 million in dividend, fees, expense reimbursements and interest” — while still retaining a 76 percent stake.
In 2010, Bain, Goldman and TPG cashed out, selling Burger King to 3G Capital, for $3.3 billion. In sum, the original private equity troika reaped a fortune by selling a company that was in nearly as much trouble as it had been when they first bought it.

What has 3G done? According to Howard Penney, the managing director at Hedgeye, it has prettied up the pig by laying off a large percentage of the staff in Burger King’s Miami headquarters. Burger King’s owners grew earnings, he said, “by cutting expenses. They have not improved the business one iota.”

Three financiers, including William Ackman, the well-known shareholder activist, put together a special purpose acquisition company, or SPAC — a vehicle that allows them to raise money, buy a company and take it public without the hassle of an I.P.O. The SPAC then bought a stake in Burger King, though 3G is still in charge. On its first day of trading, Burger King had a market value of $3.3 billion. When you include its fees and dividends, 3G has already made a tidy sum on its original investment.

For the sake of all the people whose livelihoods depend on Burger King, let’s hope that happens. And if it doesn’t? The financiers will still make money. They always do.