The so-called “Burger King structure” has been employed in a growing number of private equity (as well as strategic) acquisitions utilising a tender offer structure where it is imperative to achieve 100 percent ownership virtually simultaneously with the closing of the tender, often because of financing constraints.
Under this approach, the minimum condition to the front-end tender offer is set at the percentage that, when added to the maximum available top-up option, will ensure that the buyer will cross the 90 percent short-form threshold; if the tender fails to meet that higher minimum condition (usually measurably higher than 50 percent), the parties abandon the tender offer and proceed with a one-step merger using a proxy statement that is prepared and filed while the tender offer is pending.
In certain cases where an acquirer doesn’t have secured financing or other needs that necessitate obtaining 100 percent ownership in one fell swoop, a twist on the structure (a “hybrid Burger King”) might prove useful.
Take for example a deal where a target only has limited authorised shares available for the top-up option (e.g., only enough to carry the acquirer from an 85 percent tender level to the 90 percent short-form threshold) but where a tender offer is still the preferred structure (often for reasons of speed to control). In such a case, the target is unlikely to agree to the very high 85 percent minimum condition that would be necessary to implement the full Burger King structure.
Instead, the target will likely insist on a traditional 50 percent minimum condition, meaning the buyer would be forced to start a long-form, back-end merger process (which could take months) from scratch after the closing of the tender offer if it fails to attain an 85 percent tender level, leaving it stranded in majority, but not 100 percent, ownership position while the merger unfolds.
In our proposed “hybrid Burger King” structure, during the pendency of the front-end tender offer the target would file a proxy statement for the possible back-end, long form merger (as compared to the traditional Burger King proxy statement where the long-form merger is an alternative to the tender offer), seeking to advance the clearance of the proxy statement while the tender offer is ongoing.
In the event of a failure to obtain the 85 percent tender level n necessary to reach the short-form merger threshold after the top-up option is exercised, the buyer would hopefully be in a position to more quickly finalise its proxy, complete the back-end, long-form merger, and close the deal.
Of course this approach is unnecessary for those targets where action by written consent can be used in lieu of a shareholder vote to complete the back-end merger.
The above article originally appeared in the December 2011 Kirkland & Ellis M&A Update newsletter.