On Wednesday, June 20, Burger King (BKW, NYSE, 12 month range 14.40 – 16.31) began trading on the NYSE at $14.50 per share through a reverse merger, as opposed to the traditional IPO. The mechanics are that you take an existing publicly traded “shell corporation,” merge BKW into the shell, change the name to BKW and sell additional shares to the public. In this case, it was 16 percent of the outstanding shares.
BKW has five restaurants in Hawaii, all on Oahu.
The first day of trading saw the shares rise 3.5 percent, eventually ending the day at $15.01 per share, a lot better than the debacle of Facebook’s IPO. It also revealed that Bill Ackman owns a passive investment in the company of 12 percent. Ackman is a well-known and successful activist investor. In Hawaii, we saw A&B shares rise when it was revealed that he had made a significant investment in their shares and some speculate that he was pushing for the eventual split of the company into Matson and A&B.
BKW has been pushing its international footprint, which it expects to continue aggressively. Currently, 40 percent of the company’s restaurants are outside of the U.S. One country it is looking at is China, where it currently has 56 restaurants compared to McDonald’s 1,287 restaurants and KFC’s 3,244. BKW recently signed an agreement to add 1,000 new restaurants. It has already established a good track record internationally with increased same-store sales up the last 11 out of 12 quarters. (That’s quarters, 3 years, not months.)
BKW has about 93 percent of its restaurants as franchises, receiving franchise/royalty fees. Compare that to McDonalds, Yum Brands and Wendy’s, which are 70 to 90 percent franchised. BKW is looking to raise those fees, currently at 3.7 percent to overall 4.5 percent and internationally 5 percent. It is also receiving rental income from real estate, with an estimated value between $800 million to $1 billion.
Jim Cramer highlighted the company on his “Mad Money” show on CNBC. He called it a “terrific trade” as he expects analyst to release positive research coverage. He does say that it is a “lousy long-term pick” as there is no dividend, whereas McDonalds current dividend is yielding 3.2 percent, which he considers a “low-risk play.” All in all, Cramer feels “if you are a trader, BKW is a winner.”