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Burger King CEO resigning ahead of IPO

Burger King Corp. said Friday that its chairman and chief executive is resigning to return to running his private equity firm, ahead of the anticipated initial public offering for the No. 2 fast-food chain.
/ Source: The Associated Press

Burger King’s chairman and chief executive resigned Friday after starting a turnaround at the No. 2 hamburger restaurant chain, but his departure raised questions about the company’s impending initial public offering and its continued revolving door for leaders.

Greg Brenneman, 44, is a veteran of fixing troubled companies, such as Continental Airlines Inc. in the 1990s. He joined Burger King in August 2004 amid nearly two years of slumping sales, but the chain says it’s now had eight consecutive quarters of sales growth at stores open at least a year, and profits are small but growing.

John Chidsey, 43, was promoted from president and chief financial officer to chief executive, effective immediately. He is the 11th CEO since 1989 at the Miami-based company, whose board also announced that independent director Brian Swette would serve as non-executive chairman.

The shake-up comes as the chain’s parent, Burger King Holdings Inc., is preparing for the IPO, announced in February. The company hopes to raise up to $400 million, but has released few other details, such as the price per share or what percentage of the company would be offered. A company lawyer said Friday the sale was expected to occur by June 30, if securities regulators approve.

Burger King has spent several years trying to regain ground lost to the biggest burger chain, McDonald’s Corp., and rival Wendy’s International Inc. It has also tried to repair icy relations with some of its franchisees, a key goal because about 90 percent of restaurants are independently owned.

When asked on a conference call about the changes at the top, Chidsey said: “It portends no bad news. Everything is fine with the company.” He and Brenneman declined to get into specifics because of Securities and Exchange Commission regulations limiting what a company can say before an IPO.

But they both said the transition would be natural and smooth because the rest of the veteran management team key to the turnaround stays in place, in contrast to previous departures because of poor performance.

Brenneman said he and the board thought it would be good to leave now so there would be a stable, long-term management team once the company sells stock to investors, adding that his eventual departure was something he had discussed with the chain’s owners when he was hired 20 months ago.

Brenneman, however, told The Associated Press on the day he was hired that he intended to stay with Burger King several years. He had repeated that desire several times since.

While Chidsey is a “very capable executive” who can handle the task of running Burger King, the move still raises questions, restaurant industry analyst Allan Hickok said.

“It is not good timing. That is not the type of development in normal cases that would inflate investors’ enthusiasms for this transaction. Because it just begs the question of ’Why?”’ he said.

In a statement, Burger King’s board said: “We are confident that now is the right time to set in motion the next phase of the company’s development. John is a highly qualified leader who has served as an integral member of the management team.”

But the company has warned investors thinking of buying shares that a possible risk is the loss of Brenneman, Chidsey, longtime chief marketing officer Russ Klein and other key personnel.

“If we lost the services of any of these key personnel and fail to manage a smooth transition to new personnel, our business would suffer,” according to its Feb. 16 IPO filing.

Another analyst said the transition wouldn’t have much of an affect on the IPO. “I don’t think investors will view this as a very big deal. The guy who is running this is a turnaround specialist” who gets in, improves performance and leaves, said Melanie Hase, an analyst with Renaissance Capital.

The head of the chain’s largest franchisee said the move was a surprise to him, but he thought the brand’s progress would continue because it wasn’t all due to Brenneman, who is returning to his private equity firm, TurnWorks Inc., to pursue business turnarounds.

“Sure it’s a loss, but losses are funny things, when thing are going well, any piece that drops out of the equation seems like a loss. But things often work out,” said Alan Vituli, CEO of Carrols Corp., which has about 350 restaurants.

The largest group representing Burger King restaurant owners cut its ties with the company in October, reportedly because some restaurant owners said Burger King tried to exert too much control over them. But the National Franchisee Association and the company have worked to patch things up since then, and the group’s head thanked Brenneman for his contributions and said he looked forward to working more with Chidsey.

“We are making progress on improving our franchisee to franchisor relationship,” said Joe Anghelone, who became chairman of the association after previous executives resigned in protest.

Owen Blicksilver, a spokesman for Burger King Holdings’ owners, declined to comment. Texas Pacific Group, Bain Capital and Goldman Sachs Capital Partners bought the chain in 2002.

Brenneman has a long relationship with the owners. Texas Pacific Group’s David Bonderman led the investment group that bought a controlling stake in Continental and hired Brenneman there. Brenneman also once worked for Bain Capital. He said Friday he was still close to the owners and denied he was forced out.

The three private equity firms own 95 percent of Burger King Holdings and Brenneman owns just over 1 percent, according to the IPO filing. Brenneman earned $900,000 in salary and $2.25 million in bonuses in the fiscal year ended June 30.

Chidsey joined Burger King in March 2004 as North American president. Before that, Chidsey was chairman and CEO for two divisions at Cendant Corp.: one that includes Avis Rent A Car and Budget Rent A Car Systems, and one that includes tax preparer Jackson Hewitt.

Swette has served on Burger King’s board since April 2003. From 1998 to 2002, he was chief operating officer of online auction site eBay Inc.

Burger King reported net income of $49 million on revenues of $1.02 billion in the last six months of 2005, compared to $45 million on revenues of $969 million in the same period a year earlier. Before Brenneman, the company had posted losses for several years.