Burger King (BKC), the nation's No. 2 burger chain, is reportedly in talks with private equity firms over a possible sale. Earlier today, The Wall Street Journalreported that one likely buyer is 3i Group, a U.K.-based buyout firm.
But a recent report from New York Times says 3i is not courting the fast food chain. Instead, a firm called 3G Capital is negotiating for a stake in the company, the Times reports. 3G isn't new to the burger business business. It previously held a stake in Wendy's a couple of years ago, the Times says.
If a sale materializes, it would not be the first time that a private equity firm has stepped in to gain control of the fast food chain. Burger King has been public for four years, but eight years ago it was bought by other private equity interests, including Bain Capital and Goldman Sachs Partners.
Over the years, Burger King's growth has been challenged by rival McDonald's (MCD), which has 36,000 stores -- about three times the count of Burger King locations.
The question now is whether Burger King is a steal compared to its current market value. The stock trades just above $15, well down from its 52-week high of $22.19. McDonald's trades at just over $73, very near its 52-week peak. McDonald's market cap is $78 billion, compared to Burger King's $2.2 billion. Over the past two years, McDonald's shares are up 20%, while Burger King's have dropped 35%. And Burger King's net income from operations in its last fiscal quarter, which ended in June, was only $187 million, hardly enough to support a premium value.
McDonald's has bested Burger King with both its size and menu expansion, which includes a strong line-up of breakfast foods, premium coffee, and smoothies. Burger King is also up against Yum Brands (YUM), which owns KFC, Pizza Hut, and Taco Bell.
Burger King is in a tough spot, which makes it seem that even a private equity group would not pay a huge premium for the company.
This story was updated at 12:10 p.m. Wednesday to include information regarding 3G Capital.