Burger King owner buying out its biggest U.S. franchisee for about $1 billion

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The parent company of Burger King is buying out its biggest franchisee in the U.S. for about $1 billion and will renovate hundreds of its locations.

Restaurant Brands International Inc. will acquire all of the issued and outstanding shares of Carrols Restaurant Group Inc. that it doesn’t already hold for $9.55 per share.

Syracuse, New York-based Carrols runs 1,022 Burger King restaurants in 23 states, or about 15% of all U.S. Burger King locations. It also owns and operates 60 Popeyes restaurants.

In Indiana, Carrols operates 102 Burger Kings throughout the state and three Popeyes.

“We are going to rapidly remodel these restaurants over the next five years or so and put them back into the hands of motivated, local franchisees to create amazing experiences for our guests,” Tom Curtis, president of Burger King U.S. and Canada, said Tuesday in a prepared statement.

Restaurant Brands plans to invest approximately $500 million, funded by Carrols’ operating cash flow, to remodel about 600 of the acquired Carrols restaurants.

Burger King anticipates the refranchising of the acquired restaurants being completed in five to seven years. The brand plans to keep a couple of hundred restaurants in its company restaurant portfolio.

Andrew Charles, an analyst with TD Cowen investment bank, said Carrols is a superior franchise operator whose sales have historically outpaced the overall U.S. Burger King system. But the deal will help Restaurant Brands speed the renovation of its Burger King locations.

Restaurant Brands is in the midst of a multiyear effort to modernize its U.S. restaurants in an effort to catch up to rivals. McDonald’s announced a $6 billion plan to remodel its U.S. restaurants in 2018, for example.

“We need pretty much every Burger King all across the country to be modern, convenient and competitive with all of the other concepts out there that have new and modern buildings,” Restaurant Brands CEO Joshua Kobza said during a conference call with investors in August.

In 2022, the company announced it would spend $400 million over two years to revamp U.S. stores and boost advertising. It’s adding digital menu boards and new kitchen equipment, among other changes. In the fall, it unveiled a new prototype restaurant with less seating, more drive-thru lanes and pickup areas for mobile orders.

Charles estimates that about 40% of U.S. Burger King locations are modernized and another 10% are being revamped now. The Carrols acquisition could help grow that to 60%, he said.

The transaction includes a 30-day “go shop” period where Carrols can solicit alternative proposals from interested parties.

The deal is expected to close in the second quarter. It still needs approval from those that hold a majority of common stock held by Carrols stockholders excluding shares held by RBI and its affiliates and officers of Carrols. It also needs approval from those that hold a majority of outstanding common stock of Carrols.

Toronto-based Restaurant Brands posts full-year earnings for 2023 next month. In the third quarter, same-store sales at U.S. Burger King locations were up 6.6% over the prior year. But that lagged the 8.1% sales growth at U.S. McDonald’s locations.

Shares of Restaurant Brands were flat in afternoon trading Tuesday. Shares of Carrols Restaurant Group Inc. were up 12%.

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