Want to invest with Warren Buffett, Bill Ackman, and 3G Capital? Then you might consider Restaurant Brands International (QSR +1.93%).
Indeed, if it wasn't for the involvement of these smart money players, Restaurant Brands wouldn't even exist -- the company was created by 3G, backed by Ackman's hedge fund Pershing Square, and financed by Warren Buffett's Berkshire Hathaway. If you're looking for a smart money restaurant pick, you'll have a difficult time finding anything better.
The creation of Restaurant Brands
Restaurant Brands is less than a year old, but its history stretches back decades. It's a fast-food conglomerate -- the end result of the merger between Burger King and Tim Hortons.
3G Capital acquired Burger King in 2010, paying about $4 billion to take the company private. As a private company, 3G slashed Burger King's cost structure, sold corporate-owned stores to franchisees, and revamped its menu. Restaurant Brands' current CEO, Daniel Schwartz, didn't get his start as a restaurant operator, but rather a 3G analyst.
3G brought Burger King back to the public markets in 2012 with the help of hedge fund manager Bill Ackman. Ackman co-founded a shell company in 2011 -- Justice Holdings -- which acquired 29% of Burger King from 3G in 2012, and subsequently became Burger King Worldwide.
Burger King Worldwide then became Restaurant Brands in December when it closed its acquisition of Canadian coffee giant Tim Hortons. That acquisition was financed, in part, by Buffett's Berkshire Hathaway, which invested in the deal through a combination of preferred shares and warrants.
3G's strategy with Restaurant Brands follows the same pattern it's used on several other consumer-facing food companies in recent years, including Anheuser-Busch InBev, Heinz, and Kraft. Each time, 3G has pushed for mergers to create enormous conglomerates -- and reaped financial rewards in the process. Buffett has participated in all of them.
The outlook for Restaurant Brands
Even if those heavyweights weren't involved, Restaurant Brands is a compelling investment. The company's strategy centers on the fully franchised model, wherein it uses franchisees to shield itself from variable costs and pursue an aggressive, global expansion.
Tim Hortons, despite its dominance in Canada, has been unable to crack foreign markets. 3G, with its international expertise, should be able to guide a successful global roll-out. Burger King, meanwhile, has seen its same-store sales surge as it takes advantage of its rivals' weakness -- rather than chase the growing number of fast-casual concepts (as its competitors have done), it has pursued a menu centered on value.
And Restaurant Brands may just be getting started. Ackman suggested that the company could pursue additional acquisitions, which would allow it to continue growing and may offer additional cost synergies.
The smart money remains involved
All three smart money participants remain seriously involved in Restaurant Brands. 3G's ownership stake has been diluted significantly, but it still owns 51% of the company. Pershing Square owns about one-fifth, and Berkshire Hathaway owns just over 4%.
Investing in any company based simply on the involvement of smart money players isn't the best idea -- all three entities have, from time to time, made significant mistakes. But their track records as a whole are undeniably impressive.
