021224 Diageo Finally Sheds Burger KingDecember 17, 2002Eager to end the lengthy process of selling Burger King, Diageo cut its price 33% to $1.5 billion, and agreed to guarantee a $750 million loan to get the deal done. A $2.6 billion deal struck in July snagged last month. Caught in a price war, Burger King failed to meet contractual sales benchmarks and put on hold the sale to Texas Pacific Group, Bain Capital and Goldman Sachs. Concessions also included a $100 million revolving credit line for Burger King and $212.5 million in subordinated debt carried by Diageo -- illustrating just how anxious the London-based company was to unload the food chain to focus on wines and spirits. The company has spent billions over recent years on alcohol acquisitions, including $5 billion for most of the Seagram brands in 2000. Diageo began to look for a Burger King buyer two years ago after an ill-timed move to float Burger King stock became a victim of market conditions. The chain represents 5% of its business. ''We did want to get the final piece of the jigsaw done. In today's financial and (fast-food) markets, that was a tall order,'' Nick Rose, Diageo finance director, says of the loans and loan guarantees to the buyers. ''If we had held out for the banking world to finance it, it wouldn't have gotten done.'' The deal, which closed Friday afternoon, should provide relief for Burger King executives and franchisees, which have floundered with ownership in limbo. Burger King Chief Executive John Dasburg was unavailable for comment. ''It's a great day for Burger King,'' says Chris Clouser, chief global marketing officer. ''This has taken a huge amount of everyone's time. We've got to focus on this business.'' Currently, Burger King is focused on a price war with rival McDonald's. The Miami-based chain countered McDonald's 99-cent Big N' Tasty burger with a 99-cent double cheeseburger. Clouser says the product has helped push sales up 7% for November. The company also approved regional offers of 99-cent Whoppers, and there's talk a national offer is in the wings. ''We will consider whatever marketing initiatives it takes to compete,'' Clouser says. The reduced price for the chain did offer Diageo a tax benefit: a $175 million tax bill became a $100 million tax credit. And the lower price and debt structuring might better position Burger King for an initial public offering. ''It puts us in a very competitive position with a very strong capital structure,'' says Ben Hirst, Burger King general counsel.
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