Burger King & Diageo, toward separation

On July 26, Burger King Corp., the fast food chain, said that parent company Diageo Plc will transfer some foreign assets to Burger King in the event of a public offering of the hamburger chain's stock, in order to ease the company's transition to independence, reports Reuters. Diageo would also leave Burger King with a balance sheet that could support an investment-grade unsecured debt rating, Burger King said. The announcement comes as Diageo, the London-based food and beverage company, continues to contemplate a spin-off or outright sale of the world's number two fast food chain. Diageo announced plans last year to spin off 20 percent of Burger King as part of an outright separation plan that would allow the company to concentrate on its core liquor and spirits business. "We are evaluating all of the options, and there are essentially two at this point,"​ said Rob Doughty, a Burger King spokesman. "One is an IPO and the other would be an leveraged buyout. We obviously have to look at the health of the business and what the market appetite would be for an IPO, but there is no timetable set (for a decision) at this point."​ Several private buyout firms, including Hicks Muse Tate & Furst and Texas Pacific Group, have been mentioned as possible buyers, but industry bankers say other buyers could jump into the fray if the business is officially put on the block. On Thursday, Burger King said that as part of any separation, Diageo would transfer to Burger King several foreign subsidiaries through which restaurants are operated outside North America. Burger King currently has about $1bn of long-term debt owed to Diageo on its balance sheet. But, according to Doughty, by assuring Burger King of a balance sheet that will support at least an investment grade unsecured debt rating of at least "BBB" or higher by Standard & Poor's Corp., Diageo is essentially aiming to ensure the company won't be overly leveraged once it is spun off.