01—Abstract
Summary
Summary of the 8-K filed January 16, 2024. Cited figures are marked; the original filing is the authoritative source.
On January 16, 2024, Restaurant Brands International Inc. (RBI) furnished an 8-K announcing an agreement to acquire all Carrols Restaurant Group, Inc. shares it does not already hold for $9.55a per share in cash, an aggregate total enterprise value of approximately $1.0 billion.
The price represents 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, operating 1,022 Burger King restaurants in 23 states plus 60 Popeyes restaurants in six states, and generated approximately $1.8 billionb of system sales in the twelve months ended September 30, 2023. Burger King plans to invest approximately $500 million, funded by Carrols' operating cash flow, to remodel about 600 acquired restaurants that are not currently considered modern image, and expects to refranchise the vast majority of the portfolio to smaller franchisee groups over five to seven years.
RBI expects the transaction to be approximately neutral to Adjusted Earnings per Share, with net leverage increasing minimally and the company remaining on track to reach its previously stated net leverage target of mid-four times by the end of 2024. The deal is not subject to a financing contingency and is expected to be funded with cash on hand and term loan debt for which RBI has received a financing commitment. Closing is expected in the second quarter of 2024, subject to HSR antitrust clearance, a majority-of-the-minority stockholder vote, and other customary conditions.
RBI and its affiliates already hold approximately 15% of Carrols' outstanding equity, and affiliates of Cambridge Franchise Holdings, representing about 17% of outstanding shares, have agreed to vote in favor. The transaction was negotiated by a special committee of independent Carrols directors, which includes a 30-day "go shop" period allowing Carrols to solicit alternative proposals. The investor presentation cites a 6.6x EV / 2024E EBITDA multiple based on CapIQ consensus estimates for 2024 Adjusted EBITDA, and shows Carrols' Adjusted EBITDA rising from $4.3 million in Q1 2022 to $41.9 millionc in Q3 2023, with trailing-twelve-month Adjusted EBITDA of $142.3 million as of Q3 2023.
02—Key points
Key Highlights
- Acquisition of all Carrols shares not already held by RBI at $9.55 per share in cash, for an aggregate total enterprise value of approximately $1.0 billion
- Offer price represents a 23.1% premium to the 30-day VWAP and a 13.4% premium to the January 12, 2024 closing price
- Carrols operates 1,022 Burger King restaurants in 23 states and 60 Popeyes restaurants in six states, with approximately $1.8 billion of system sales in the twelve months ended September 30, 2023
- Burger King plans roughly $500 million of remodel investment over five years for about 600 restaurants, followed by refranchising most of the portfolio to smaller franchisee groups over five to seven years
- RBI expects the deal to be approximately neutral to Adjusted EPS, with net leverage rising minimally and the mid-four times net leverage target by end-2024 still on track
- Funding is expected from cash on hand and term loan debt for which RBI has received a financing commitment; the deal is not subject to a financing contingency
- Closing expected in Q2 2024, subject to HSR clearance, majority-of-the-minority stockholder approval, and a 30-day go-shop period for alternative proposals
03—Questions
Frequently Asked Questions
How much is RBI paying for Carrols and how does the price compare to market levels?
RBI will pay $9.55 per share in cash for all Carrols shares it does not already own, implying an aggregate total enterprise value of approximately $1.0 billion. The price is 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.
How will the acquisition be financed and what is the impact on RBI's leverage?
The transaction 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 states that net leverage will increase minimally and that it remains on track to reach its previously stated net leverage target of mid-four times by the end of 2024.
What is the expected earnings impact of the deal?
RBI expects the transaction to be approximately neutral to Adjusted Earnings per Share.
What are the conditions and timing for closing?
The transaction is expected to close in the second quarter of 2024. Closing is subject to expiration or termination of the HSR Act waiting period, approval by a majority of Carrols common stock held by unaffiliated stockholders, and other customary closing conditions. The merger agreement also includes a 30-day go-shop period, and the filing notes that there can be no assurance the merger will be completed on the anticipated timeline.
What does Burger King plan to do with the acquired restaurants?
Burger King plans to invest approximately $500 million, funded by Carrols' operating cash flow, to remodel about 600 acquired restaurants that are not currently considered modern image over the next five years. It ultimately intends to refranchise the vast majority of the portfolio to new or existing smaller franchise operators over five to seven years, retaining a couple of hundred company restaurants for innovation, training and operator development.
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