Burger King shares should be worth in the high teens when the third-largest U.S. hamburger chain goes public again in a deal with UK investment firm Justice Holdings, Justice co-founder William Ackman said on Wednesday.
The hedge fund veteran’s comments came a day after Burger King said it was going to list on the New York Stock Exchange in a few months. Private equity group 3G Capital Management LLC took the company private less than two years ago.
“We think the stock today is worth something in the high $17 (US) to $18 range,” Ackman said on a conference call.
Using a more aggressive multiple based on assumptions of a successful turnaround, Ackman said the stock would be worth “as much as $20 per share.”
The chain, known for its Whopper hamburgers, is revamping its menu by adding “healthy” items such as salads and high-margin beverages, including smoothies, as it strives to win over more diners and catch up with market leader McDonald’s Corp and Wendy’s Co.
Burger King has traditionally targeted young male customers, while Wendy’s and McDonald’s serve a broader market, including moms, children and senior citizens.
Wendy’s took over as the second-largest U.S. hamburger chain from Burger King in 2011.
Analysts, surprised at how soon Burger King was planning to go public again, said the menu changes seemed more of a defensive play than proof that Burger King’s new owners are coming up with new ideas.
“It’s more of a situation of just keeping pace with rivals rather than true innovation,” Morningstar restaurant analyst RJ Hottovy said.
“Restaurant concepts that tend to do the best are the ones with specific niches, such as Chipotle,” said Francis Gaskins, president of IPO Desktop. “Burger King’s concept is very broad. It’s in the backdrop of similar companies like Jack in the Box, Wendy’s and McDonald’s.”
Ackman said the decision to relist the company highlights a profit improvement at Burger King, which operates more than 12,000 mainly franchised fast-food outlets around the world.
3G Capital, which bought Burger King in October 2010, will retain a 71% stake in the company after it goes public. Justice, a shell company that went public in February 2011, will merge with Burger King and pay about $1.4 billion in cash for a 29% stake in the new company.
The proposed transaction was unanimously approved by the boards of directors of both companies. The closing is expected in 60 to 90 days, subject to regulatory approval.
The new Burger King company is expected to trade in New York in the next two to three months. Justice shares were immediately suspended after the deal was announced late on Tuesday.