The potential union of Tim Hortons Inc. and Burger King Worldwide Inc. could put Canada's doughnut darling in the hands of a Brazilian private equity firm with a reputation for cost-cutting.
A merger of the two quick-service giants would leave 3G Capital Inc., led by Brazil's richest man, holding the majority of the shares in the new company. The firm already has a more than 70-per-cent stake in Miami-based Burger King, which has a market cap of about $11.4-billion (U.S.). And in the four years it has owned the burger chain, 3G has proven it can make changes quickly.
3G took Burger King private in a $4-billion acquisition in 2010, but returned to the public markets two years later as it sold 29 per cent of the restaurant chain. In the mean time, Burger King's new owners installed a team that proceeded to revamp the menu, sell many of its restaurants to franchisees and lay off head office staff.
"Something that's embedded in our culture is that we are going to continuously look for areas to find efficiencies and to operate our business in a smarter way," said Josh Kobza, Burger King's chief financial officer, discussing costs on a recent earnings call with analysts. "That's another area that will continue to be focused on over the next few years, in trying to be the most efficient operator in our sector. And that is really how we think about driving underlying growth in our business, and those are the big focuses for our model going forward."
Others in the private equity business also consider 3G to be a top-notch operator that is cost and capital efficient. One fan is famed investor Warren Buffett. In February, 2013, 3G joined Mr. Buffett's company, Berkshire Hathaway Inc., to buy ketchup maker H.J. Heinz Co. in a $28-billion deal. The deal put 3G associates in charge of operations, and cost-cutting measures such as layoffs and production-facility closings were reported soon afterward.
The deal and subsequent leadership changes also ruffled a few feathers. Heinz sells 650 million bottles of its best known condiment each year, but none of that red sauce is offered at McDonald's Corp. any more. Following the appointment of former Burger King chief executive Bernardo Hees to the top job at Heinz, McDonald's said as a result of "recent management changes" it wouldn't stock Heinz products. Mr. Hees has also been a partner at 3G since July, 2010.
3G prides itself on recruiting and grooming its own "top-tier talent" and has also instated new leadership at Burger King. BK's current chief executive officer Daniel Schwartz cut his teeth at 3G, having joined as an analyst in 2005. He worked with the firm's public and private equity investments for five years and became a partner in 2008. After 3G acquired BK in 2010, Mr. Schwartz took on the role of CFO, and later became leader of the burger chain in June, 2013. Other Burger King executives also have ties to 3G, or its related companies.
With offices in New York City and Rio de Janeiro, 3G Capital has direct exposure to both the maturing western market and the burgeoning needs of emerging economies, where quick-service chains such as Burger King, McDonald's and Yum Brands Inc.'s KFC and Taco Bell chains are eager to grow their market share.
Some of that international experience was gleaned through the $52-billion merger that created beer and beverage titan Anheuser-Busch InBev SA in 2008, which several of 3G's leaders had a hand in. Three are still part of the controlling group of shareholders in the world's largest brewing company.