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Subject: BURGER KING SOLD!

Author:
thestreet.com

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Date Posted: 09:32:50 12/15/02 Sun

Diageo finalising Burger King deal
By Juliana Ratner and Adam Jones

Diageo, the world's largest drinks company, was last night putting the finishing touches on a plan to help finance its sale of Burger King in a cut-price $1.5bn (�960m) deal that will bring the 30-month process to an end.

An agreement with the buyers, a consortium headed by Texas Pacific Group, the US private equity group, could be announced as soon as today. A sale would end Diageo's legacy as a food and drinks business, allowing it to focus on spirits.

Diageo agreed in the summer to sell the chain of 11,000 fast-food restaurants to the TPG-led group for $2.26bn. But it admitted last month that it had been forced to renegotiate the deal after a deterioration in Burger King's performance, partly because of a price war with McDonald's. Because of the difficult financing market, the buyers had trouble securing the necessary funds.

One analyst said that the price cut would have little impact on Diageo, while reaching a deal would free management from a long-running distraction. The new owners could float the struggling fast-food business within 12 to 18 months if equity market conditions improved, the analyst said.

The seller is expected to help the TPG-led group with its financing, although Diageo is understood to be against keeping any equity stake in Burger King.

Diageo last month rejected a revised offer from TPG for the fast-food chain that would have reduced the cash value of the sale and left it with an equity stake.

The industry faces a number of obstacles, none of which will be easy for any owner to grapple with. Burger King franchisees have voted to offer a 99-cent Whopper in January, escalating the price war with McDonald's. In addition, Burger King's larger competitor faces a law suit in the US in which it is alleged its customers did not know that eating McDonald's food every day would make them fat. Any litigation liability could eventually spread to Burger King and other fast-food purveyors.

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