Carrols Restaurant Group Inc. has agreed to acquire 278 company-owned Burger King restaurants through an asset purchase agreement with Burger King Corp., the Syracuse, N.Y.-based company said Monday.
The transaction, which will make Carrols the system’s largest global franchisee, with 575 Burger King outlets, will give Burger King a 28.9-percent equity interest in Carrols. Carrols also agreed to pay the Miami-based franchisor about $15.8 million.
As part of the deal, Carrols agreed to remodel about 450 Burger King locations to the chain’s 20/20 restaurant image over the next three and a half years.
In addition, Burger King Corp.’s president, North America, Steve Wiborg, and chief financial officer Daniel Schwartz will join Carrols’ board of directors.
Carrols, which, with its current 297 locations, already ranks as the largest domestic Burger King franchisee, is completing the spin-off to its shareholders of Fiesta Restaurant Group Inc., which owns and operates the Pollo Tropical and Taco Cabana chains. Following the transaction, Carrols will operate only Burger King restaurants.
The acquisition is contingent upon the completion of the Fiesta spin-off and Carrols’ access to financing, which will be used to fund the Burger King remodeling program, cash paid out to parent Burger King from the transaction, and refinancing of Carrols LLC’s existing senior secured credit facility.
Under the deal with Burger King Holdings, Carrols would also be given right of first refusal on the sale of Burger King restaurants by other franchisees in 20 states, indicating the company is looking to add more units.
The spin-off is expected to close in April.
“With the spin-off of Fiesta nearly behind us, our sole focus as we move forward will be on expanding our Burger King business and leveraging our operating infrastructure to build shareholder value,” Dan Accordino, chief executive and president of Carrols Restaurant Group Inc., said in a statement.
“We believe that there are significant opportunities for us to grow Carrols through acquisition and consolidation opportunities present within the Burger King system,” he said. “This transaction, along with the close relationship that we are establishing with BKC, is a very exciting and pivotal step as we begin this journey.”
The 278 Burger King restaurants are in Ohio, Indiana, Kentucky, Pennsylvania, North Carolina, South Carolina and Virginia.
Wiborg said Burger King is “very excited to further solidify our relationship with our long-time franchisee, Carrols Restaurant Group. Carrols has a proven track record of running industry-leading restaurants and has demonstrated a long-term commitment to the Burger King brand. Their leadership, operational expertise and commitment to upgrade the image of their restaurants across the country will greatly contribute to our efforts to provide our restaurant guests with friendly service and quality products served in a fresh, new environment."
Carrols said it plans to issue a class of voting preferred stock to Burger King that will be convertible into 28.9 percent of the outstanding shares of Carrols’ common stock and voting rights to an amount not to exceed 19.9 percent of outstanding shares.
For the fourth quarter of 2011 ended Feb. 28, Carrols Restaurant Group said revenue rose 4.5 percent to $203.6 million, compared with the prior-year quarter's $194.9 million.
Net income for the fourth quarter fell to $59,000, or zero cents per share, compared with $2.6 million, or 12 cents per share in the same period of 2010.
Same-store sales in the quarter increased 1.5 percent at Burger King, 7.8 percent at Pollo Tropical and 2.7 percent at Taco Cabana.
Total revenue for 2011 rose 3.3 percent to $822.5 million, compared with $796.1 million in 2010.
Net income for 2011 was $11.2 million, or 51 cents per share, compared with $11.9 million, or 55 cents per share in 2010. Both years included certain charges, which in the aggregate reduced earnings by 25 cents per share in 2011 and 21 cents per share in 2010.
Contact Paul Frumkin at paul.frumkin@penton.com.