UK drinks giant Diageo is in exclusive talks with Texas Pacific Group (TPG) on the sale of its US fastfood business Burger King (BK), after two other bidders refused to raise their offers.

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Bloomberg reported this morning that TPG has offered more than the US$2.1bn put in by other bidders. Some market watchers have suggested that it offered US$2.3bn (7x EBITDA). This news comes just one week after the reports in the US press revealed that Diageo had turned down offers from all three suitors.


According to Bloomberg, Triarc, which operates Arby’s roast beef sandwich chain, bid US$1.9bn in cash and US$200m in notes but pulled out of the auction after Diageo asked it to up its bid by up to 10%. Similarly, venture capitalists Thomas Lee, the Blackstone Group LP and Madison Dearborn Partners, all pulled out after their offers of US$2.1bn were found to be too low.


European investment bank WestLB Panmure said that although it suspects that TPG will seek to eventually securitise the royalties and fees paid by BK franchisees, which should raise the value, “Diageo may seek to accept the lower offer in the face of the weakening US stock market and worsening economic outlook.


“In other words, Diageo has become a forced seller and is unlikely to maximise returns from the sale of BK.

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The bank added: “Though a price of US$2.3bn is in line with other deals in the US fastfood industry, should the business end up securitised, TPG could be viewed as having bought BK cheaply.”

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