Restaurant Brands International (RBI) and Carrols Restaurant Group today announced that they have reached an agreement for RBI to acquire all of Carrols issued and outstanding shares that are not already held by RBI or its affiliates for $9.55 per share in an all-cash deal, or an aggregate total enterprise value of approximately $1 billion, representing a 23.1% premium to Carrols 30-day volume-weighted average price as of January 12, 2024 and a 13.4% premium to the January 12, 2024 closing price.
Carrols is the largest Burger King franchisee in the United States today, operating 1,022 Burger King restaurants in 23 states that generated about $1.8 billion of system sales during the twelve months ending September 30, 2023. Carrols also owns and operates 60 Popeyes restaurants in six states.
Deal Rationale
The deal is part of Burger King’s Reclaim the Flame plan to accelerate sales growth and drive franchisee profitability. And the deal follows the brand’s initial $400 million investment announced in September 2022 to drive high-quality remodels, improve operations, enhance marketing, and support ongoing technology and digital priorities.
Burger King expects to significantly accelerate Carrols’ remodel rate to bring the acquired portfolio to a modern image over the next five years. And to make this happen, the team plans to invest approximately $500 million of capital, funded by Carrols’ operating cash flow, to remodel approximately 600 acquired restaurants that are not currently considered modern image.
Carrols has a team of strong, experienced operators who – in partnership with Burger King’s operations teams – will operate the acquired restaurants. And Burger King plans to refranchise the vast majority of the portfolio to new or existing smaller franchise operators who live in their local communities. Following refranchising the acquired restaurants, which they expect will be completed in five to seven years, Burger King will maintain a company restaurant portfolio of a couple of hundred restaurants for strategic innovation, training, and operator development purposes.
Deal Details
Under the terms of the merger agreement, RBI will acquire all of Carrols issued and outstanding shares that are not already held by RBI or its affiliates for $9.55 per share in an all-cash transaction. And this represents a premium of 23% to Carrols’ 30 trading-day volume-weighted average price as of January 12, 2024, and implies a total enterprise value of approximately $1.0 billion. RBI and its affiliates currently hold approximately 15% of Carrols outstanding equity.
A special transaction committee of Carrols’ Board of Directors comprised of independent directors unaffiliated with RBI (the Special Committee), advised by independent legal and financial advisors, was formed to conduct a deliberate and thoughtful process to evaluate this proposal. The deal negotiations were led by the Special Committee, and following its unanimous recommendation, the Carrols Board of Directors (other than directors affiliated with RBI) unanimously approved the merger agreement with RBI and agreed to recommend that Carrols stockholders vote to adopt the merger agreement. This definitive merger agreement includes a 30-day “go shop” period that will allow the Company to solicit alternative proposals from interested parties affirmatively.
The deal is expected to be completed in the second quarter of 2024 and is subject to expiration or termination of the applicable waiting period and other customary closing conditions, including approval by the holders of a majority of common stock held by Carrols stockholders excluding shares held by RBI and its affiliates and officers of Carrols along with approval by holders of a majority of outstanding common stock of Carrols.
The deal is not subject to a financing contingency and is expected to be financed with cash on hand and term loan debt for which RBI has received a financing commitment.
RBI expects the deal to be approximately neutral to Adjusted Earnings per Share. And net leverage giving effect to the transaction will increase minimally and the Company will remain on track to reach its previously stated net leverage target of mid-four times by the end of 2024.
The affiliates of Cambridge Franchise Holdings, LLC, who in aggregate own or control approximately 17% of outstanding Carrols shares and approximately 20% of outstanding Carrols shares held by stockholders unaffiliated with RBI, have entered into a voting agreement pursuant to which they have agreed, among other things, to vote their shares of common stock of Carrols in favor of the transaction.
J.P. Morgan acted as financial advisor and Paul, Weiss, Rifkind, Wharton & Garrison acted as legal advisors to RBI. Jefferies LLC acted as financial advisor and Milbank LLP acted as legal advisor to the Special Committee of the Carrols Board of Directors.
KEY QUOTES:
“Carrols has demonstrated strong and improving restaurant operations over the years. This acquisition is an exciting accelerator to our Reclaim the Flame plan that is focused on relentlessly pursuing a better experience for our Guests. 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
“Today’s announcement is a testament to our more than 24,000 Carrols team members who have helped drive the company to record levels of profitability over the past 12 months. These results have allowed us, through this transaction, to deliver immediate and certain value to Carrols shareholders at an attractive premium to the Company’s current and historical share prices. Additionally, we believe our team members will now have additional opportunities as part of the greater RBI family – in our office, in the field and especially in our restaurants, including for long-time managers who may want to become franchisees themselves. We look forward to working closely with Tom and the rest of the Burger King team in the months and years ahead.”
— Deborah Derby, President and CEO of Carrols
“This is a terrific example of our commitment to put our capital to work to accelerate growth and support Tom and his team in their broader efforts to have a more competitive Burger King restaurant base. The strategic merits of this acquisition are very compelling and consistent with our objective to invest our capital in long-term, high-return opportunities.”
— Josh Kobza, CEO of RBI
