000423 Burger King Franchisees Seek Break

Orlando, FL - Burger King Corp. has rejected an offer from its U.S. franchisees to purchase the brand from the hamburger chain's parent company, Diageo PLC of Britain.

Burger King, based in Miami, disclosed the offer from the National Franchisee Association in a brief news release Monday, but did not provide details.

“Diageo has responded firmly to the NFA that the Burger King brand is not for sale to any entity,” the statement said. “The Burger King brand has been growing and presents a tremendous growth opportunity both in North America as well as internationally. Diageo has been investing heavily and will continue to do so to grow the Burger King brand.”

The NFA has hired specialists to assist in formulating “a plan attractive to Diageo that provides for the sale of Burger King,” according to memos distributed to franchisees at the annual Burger King franchisee convention in Orlando, Dow Jones Newswires reported. It said copies of the memos were made available to the news service.

The specialists team includes the Wall Street law firm of Weil Gotshal & Manges, public relations specialists Hill & Knowlton and Arthur Andersen LLP as merger and acquisition consultants, the Dow Jones report said.

The franchisees hope to gain independence from Diageo, allowing Burger King to possibly become a freestanding company.

The offer boldly demonstrates the widening split between the parent company and franchisees, who have complained of slim profit margins, ineffective marketing campaigns and lack of leadership.

In a Feb. 26 letter to the company that was obtained by Dow Jones, franchisee association president Steven M. Lewis alluded to “the weakened state of the Burger King brand and inadequate franchisee support by Burger King Corp.”

Also, Burger King apparently plans to increase royalty rates from 3.5% to 4.5% and the franchise fee from $40,000 to $50,000, both as of July 1.

Diageo is primarily a liquor and beer company whose brands include Guinness beer, Johnnie Walker Scotch, Pillsbury baked goods, Green Giant vegetables and Haagen-Dazs ice cream.

Burger King is the world's second-largest hamburger chain, behind McDonald's Corp. (NYSE:MCD - news), with some 10,850 Burger King restaurants worldwide, most of them franchised.

Diageo has owned Burger King since 1988. That was when its predecessor company, Grand Metropolitan PLC, acquired the fast-food operation as part of its purchase of Pillsbury Co.

Burger King had 1999 sales of $1.4 billion, while parent Diageo had sales of $18.3 billion.

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