Diageo has allegedly turned down a revised offer for Burger King. As the dining out market continues to evolve away from fastfood, at least in Western markets, Diageo’s deal to offload Burger King looks increasingly vulnerable. Given a choice between carrying forward its vital strategic reorientation and holding out on price for Burger King, Diageo may be forced to compromise.
According to press reports, the Texas Pacific Group has entered a scaled down offer of US$1.6bn for US fastfood chain Burger King. Current owner Diageo, the UK based drinks and spirits giant, is said to be less than enthused and the offer has been rejected. Diageo was hoping to rid itself of the fastfood chain by the year’s end, leaving the company to focus on its vast drinks business.
The scaled down offer was prompted by problems with Burger King’s recent performance. In order for the sale to go through a series of agreed performance targets need to be met. Yet despite some improvement earlier in the year, more recently things have turned sour for Burger King following a price war among America’s top fast food chains.
Burger King’s is not alone in its problems. Changing preferences are seeing health conscious consumers abandoning the traditional fast foods, especially the burger, in favor of healthier fast-casual options. Fastfood chains have responded in a number of ways, culminating in a good old-fashioned price war.
Like Burger King, McDonald’s has also experienced a slowdown over the past two years and recently announced it would be closing 175 under-performing restaurants in ten countries. Meanwhile, fastfood chains such as sandwich maker Subway, which has successfully repositioned itself as a healthier alternative, have been experiencing soaring business.
As the eating out market heads in a new, healthier direction, Diageo’s asking price for Burger King looks increasingly optimistic.
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