The acquisition of Burger King by a US consortium comprising Texas Pacific Group, Bain Capital and Goldman Sachs is set for further delays following an announcement this morning that the consortium would re-open negotiations with UK drinks group Diageo. Poorer than expected performance figures and concerns about the ongoing trading environment have meant that the buyers have been reviewing the price they are prepared to pay for the business.
In a statement to the London Stock Exchange, Diageo said: “[We have] been informed by the buying group that, in the light of the conditions existing in Burger King's markets and the buying group's judgement of their potential effects under the agreement, including their potential effects under its financing, the buying group wants to discuss with Diageo potential revisions to the terms of the July agreement.'
The July agreement, which valued the business at $2.26bn, hinged upon performance targets being met in the period prior to the deal closing. It is thought that a downturn in Burger King’s performance, coupled with a broader dip in the sector, may result in a price reduction, with the TexPac consortium citing a material adverse change [MAC] since agreeing the deal.
Today, The Times newspaper reports that the consortium is looking to reduce the price for Burger King by around $160m, which would make it easier to secure financing for the transaction. The consortium had planned to raise around $1.66bn for the debt component of the transaction, of which $500m was to be raised in the high-yield bond market and the remainder from banks. However a lack of appetite amongst three investment banks to launch such an issue at what some regarded as too high a debt-to-equity multiple has thrown the deal’s financing package into doubt.
Diageo had aimed to complete the deal before year end, although this is now thought to be highly unlikely. Diageo has not ruled out the possibility that the deal might fall through. The group had originally planned to float the business although a downturn in the public markets forced it to pursue a trade sale.