Tickers in this Article: MCD, WEN, CMG, PNRA, YUM, ARCO, JSTUF
Investors hankering to own a piece of Burger King apparently won't have to worry about a long wait. While this well-known fast food chain was taken private less than two years ago, it looks the company's current owners are going to pursuing a listing once again on the NYSE. Given the ongoing performance problems, though, investors may want to let others take the first bites.

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A Quick Turnaround, Minus the Turnaround
Investors would do well to ask themselves why 3G Capital is in such a hurry to put Burger King back on the public market. After all, private equity investors aren't really known for being especially generous when it comes to sharing in the success of a really good idea. The company recently announced a merger with Justice Holdings (OTCBB:JSTUF), an investment vehicle co-founded by Bill Ackman and publicly listed in London. As part of the merger, 3G Capital gets $1.4 billion in cash and maintains its majority position, but will also list the combined company on the NYSE.

While Ackman has suddenly gotten very vocal about the value of Burger King, a quick perusal of recent financial filings doesn't show it. Ackman has pointed out that EBITDA not including CAPEX has nearly doubled since 2010, but that's only a small part of the story.

SEE: A Clear Look At EBITDA


For 2011, Burger King's same-store sales dropped around 0.5% and they've been weak for a few years now, while McDonald's (NYSE:MCD) reported robust 5.6% growth in 2011. What's more, Wendy's (NYSE:WEN) has recently supplanted Burger King as the number two burger chain in the U.S., and diners are increasingly choosing burger-free options like Chipotle (NYSE:CMG), Yum Brands' (NYSE:YUM) Taco Bell and Panera (Nasdaq:PNRA), not to mention up and coming burger chains like Five Guys.

It's also worth noting that Ackman may well be "talking his book" here. While Ackman called out McDonald's as "enormously bloated," Burger King hasn't been anywhere close to McDonalds's restaurant-level margins in years and the free cash flow margins (free cash flow divided by revenue) aren't that close either (with McDonald's at 16.2% and Burger King at 13.9%).

Expanding the Menu and Growing Overseas ... Where Others Already Are
At the risk of bludgeoning Burger King further, a lot of the growth plans being bandied about don't really seem all that novel, either. BK's much-ballyhooed menu expansion announced this week added 10 new items to menu, and almost all of them were items that McDonald's already offers. Seeing as how companies like Chipotle and Panera have succeeded by offering something new or different, I don't see how Burger King expects to close the gap by simply being a less-efficient McDonald's.

Likewise with the expansion potential. While the company mentions that it is under-penetrated in markets like Brazil and Asia, the fact is that the company will run into familiar competitors here, too. Arcos Dorados (NYSE:ARCO) is posting double-digit growth as a McDonald's operator in Latin America (especially Brazil), while Yum Brands has shown remarkable growth in Asia for many years now.

SEE: How To Analyze Restaurant Stocks


The Bottom Line
There's a fair price for every asset and I suppose there's a chance that Burger King will come to the market at a valuation that reflects its lagging performance. Based on the comments from Ackman, though, I wouldn't bank on that. What's more, I have to seriously question the investment prospects of a company that is being so quickly spun out of private ownership; it strikes me more as a situation where 3G has come to realize it made a mistake and wants to move on to better opportunities.

Investors should also realize that almost the entire history of Burger King has been one of convoluted ownership, chronic underperformance and the never-ending hope that the next repositioning will be the one that does the trick. Instead of paying a premium in the hopes that Burger King does better, investors may do well to approach this one with caution and demand a compelling price.

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At the time of writing, Stephen Simpson did not own shares in any of the companies mentioned in this article.

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