Midwest Burger Kings Fetch A Good Price

By Jonathan Maze, April 29, 2011

Franchisees are not shying away from Burger King, at least judging from the response from bidders for 74 units belonging to the bankrupt Duke & King Acquisition that were auctioned off early this week. The bidders, including two of the Miami chain's largest operators, agreed to pay nearly $12 million in cash.

Robert Hersch, president of Mastodon Ventures, the Texas company that ran the auction in Minnesota, estimated the total value for the bids to be roughly $15 million when assumed liabilities, including various store improvements and deferred maintenance, are factored into the equation. "These are among the highest values achieved for a Burger King since 2007," Hersch said. "It clearly shows some confidence in Burger King."

The 74 restaurants were divided into five pieces based on geography: Missouri, Iowa, Minnesota, Wisconsin and Illinois.

The biggest portion of the restaurants, 40 in the Minneapolis area, went to Heartland Food Corp., Burger King's third largest operator with 256 units. Heartland was the stalking horse bidder, at $7.16 million, and nobody else bid on those units. One company that was sniffing around before the bidding was McDonald's, which according to sources had been looking to buy 18 of the units.

McDonald's was unable to bid on just those units, however, and the cost of acquiring all of the restaurants was not worth it to the burger giant and it did not bid.

Strategic Restaurants Acquisition Corp., Burger King's second largest operator, won the bidding for 13 restaurants in Missouri, for which it has agreed to pay $3.1 million, plus the value of on-hand cash and inventory. A Michigan operator, meanwhile, has agreed to pay $500,000 for four restaurants in Davenport, Iowa. Like Heartland, both those companies had been the stalking horse bidders.

The only actual back-and-forth bidding for restaurants was over 17 units in Illinois and Wisconsin, for which Heartland agreed to pay $500,001 (it had agreed to pay $1 for five units in Wisconsin, the rest for the Illinois units). Yet Illinois-based Cave Enterprises outbid Heartland, ultimately agreeing to pay $995,000. 

Still uncertain is the fate of 13 restaurants, many of which are in Illinois and Missouri, that were carved out of the bidding because of substantial capital requirements on the units. Some of the companies that won bidding have expressed interest in the units, Hersch said, but it won't be known if any will be bought until the sale is approved by a U.S. Bankruptcy Court on May 10. He expects some of the bidders to buy those units.

Duke & King went bankrupt late last year, as steeply declining sales made it unable to meet substantial capital expenses. Burger King as a chain is struggling to reverse its own sales slide even after its purchase last year by the private equity firm 3G Capital. Still, it has undertaken a series of franchisee-friendly efforts in the U.S. under North American President Steve Wiborg—former CEO at Heartland—including settling the $1 Double Cheeseburger lawsuit earlier this month.