Burger King will buy its largest US franchisee for approximately $1 billion

Burger King’s parent company is buying out its largest franchisee in the United States for almost $1 billion and will refurbish hundreds of its outlets.

Restaurant Brands International Inc. will buy all of Carrols Restaurant Group Inc.’s issued and outstanding shares for $9.55 per share.

Carrols, based in Syracuse, New York, operates 1,022 Burger King restaurants throughout 23 states, accounting for approximately 15% of all Burger King stores in the United States. It also owns and operates sixty Popeyes restaurants.

Burger King will buy its largest US franchisee for approximately $1 billion

“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 in a prepared statement Tuesday.

Restaurant Brands intends to invest around $500 million, supported by Carrols’ operating cash flow, to renovate approximately 600 of the purchased Carrols restaurants.

Burger King expects to refranchise the purchased outlets within five to seven years. The brand intends to preserve a few hundred outlets in its firm restaurant portfolio.

According to Andrew Charles, an analyst with TD Cowen Investment Bank, Carrolls is a strong franchise operator whose sales have traditionally outperformed the larger Burger King system in the United States. However, the agreement will help Restaurant Brands accelerate the remodeling of its Burger King stores.

Restaurant Brands is undergoing a multiyear effort to remodel its restaurants in the United States in order to catch up with competitors. In 2018, McDonald’s revealed a $6 billion plan to rebuild its locations in the United States.

“We need pretty much every Burger King 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 an August investor conference call.

Burger King will buy its largest US franchisee for approximately $1 billion

In 2022, the firm said that it would spend $400 million over two years to renovate US locations and increase advertising. It is implementing computerized menu boards and new culinary equipment, among other upgrades. In the fall, it revealed a new prototype restaurant with fewer seats, additional drive-thru lanes, and mobile order pickup stations.

According to Charles, around 40% of Burger King sites in the United States have been updated, with another 10% currently undergoing renovations. He believes the Carrols acquisition will help increase that figure to 60%.

The purchase includes a 30-day “go shop” period in which Carrols might seek other ideas from interested parties.

The transaction is expected to be finalized in the second quarter. It still requires approval from individuals who own the majority of Carrol’s stockholders’ common stock, excluding shares owned by the RBI and its affiliates, as well as Carrols officers. It also needs the permission of individuals who own the majority of Carrols’ outstanding common shares.

Next month, Toronto-based Restaurant Brands will report its full-year earnings for 2023. In the third quarter, same-store sales at Burger King outlets in the United States increased by 6.6% from the previous year. However, this fell short of the 8.1% increase in sales at McDonald’s outlets in the United States.

Restaurant Brands shares were steady in afternoon trading on Tuesday. Carrols Restaurant Group Inc. shares rose 12%.

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