NEW YORK (CNNfn) - British food and drinks firm Diageo PLC announced Thursday that it plans to offer shares in its U.S.-based fast food chain Burger King on the New York Stock Exchange, possibly as soon as next year.|
Diageo's chief operating officer, Paul Walsh, said it could offer about 20 percent of Burger King on the New York Stock Exchange in the first half of 2001. Another stock sale would place after 2002, provided changes in U.S. tax laws allow the transaction to proceed on a tax-free basis.
The company said it valued the unit at two billion pounds or the equivalent of $3 billion or more.
"It looks like it could take place sometime after March, potentially about a year from now. And part of the reason for that is that Diageo does not believe it will have a new, permanent CEO before then," said Mark Kalinowski, analyst at Salomon Smith Barney in New York. "The second thing is that if they were to decide to completely divest, that too will not happen until 2003, at the earliest."
Burger King's chief executive, Dennis Malamatinas, who was beaten to the post of chief operating officer of Diageo last year, has resigned from the board effective Aug. 30, 2000, the company said. Meanwhile, Diageo has begun a worldwide search for a new executive to lead the Miami-based company toward the stock sale.
"We believe that a partial floatation of the company, which opens the possibilities of a demerger or a full floatation at a future date, is the option we must now develop," said Diageo's chief executive, John McGrath.
Diageo said it was appointing the chief of Guinness' brewing division, Colin Storm, as Burger King's CEO until a replacement is found. Guinness' managing director of developing markets will assume the top job at Diageo's brewing division.
Burger King, founded in 1954, now runs about 11,037 restaurants, with just over 8,000 in the United States.
Burger King accounts for about 10 percent of Diageo's profits but the parent company has come under increasing pressure to sell the unit with some analysts highlighting a lack of synergy with Diageo's other activities - wine and spirits, the Guinness brewing unit and food maker Pillsbury.
As the world's No. 2 fast food chain, with system wide sales of about $10.9 billion in 1999, Burger King still struggles to compete in the global market with market leader McDonald's.
"In the near term, what is going on at Burger King can actually be viewed as a positive for McDonald's (MCD: Research, Estimates) and Wendy's," said Kalinowski. "Burger King has struggled with management turnover recently, with their latest CEO leaving. For their own sake, they would hope to bring in a very good, and experienced CEO, someone perceptive to franchising, by early next year. But until then, things have tipped a little bit more to the advantage of McDonald's."
Burger King was part of the Pillsbury company taken over by GrandMet in 1989, and became part of Diageo when GrandMet and Guinness merged in December 1997.
Diageo shares were down 6 pence at 592 pence at the close of Thursday trading on the London Stock Exchange.
--from staff and wire reports