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Investor group buying Burger King; challenges ahead

Britain's Diageo PLC announced a deal Thursday to sell Burger King Corp., the world's second-largest fast-food business, to a consortium of U.S. investors.

Diageo, the world's largest producer of alcoholic beverages, will unload Miami-based Burger King for $2.26-billion in cash and turn its focus to popular liquor brands such as Johnny Walker Scotch and Smirnoff Vodka.

Burger King's buyer is a consortium of venture capital firms led by Texas Pacific Group, which bought Paradyne Networks in Largo in 1996 and helped guide it back into the black. The trio also includes Boston-based Bain Capital and Goldman Sachs Capital Partners, the private equity arm of U.S. investment bank Goldman Sachs. Bain has experience with the fast-food franchise business from its ownership of the Domino's Pizza chain.

"This is the end of what has been a strategic journey, if you like, for Diageo," the company's chief financial officer, Nick Rose, told reporters in a conference call. "We feel that we've achieved a clean separation at a very good value for our shareholders."

The sale is largely seen as a positive move, although analysts said the fast-food chain's new owners may have difficulties boosting profits.

But Christopher Clouser, executive vice president of Burger King, said his company has made changes in the past year to reverse shrinking profits and that the new owners will stay the course.

"The new owners will be very involved in strategic direction," Clouser said. "But they endorse what's being accomplished here and the momentum we've got in the marketplace."

Clouser acknowledged the close ties between Burger King chief executive John Dasburg and David Bonderman, chief executive of Texas Pacific Group, but said Dasburg conducted himself in a fair way to all 11 bidders. "The best owner, with the best experience, with the best price prevailed," Clouser said.

Sales for Burger King's largest franchise-holder, AmeriKing, fell by at least 5 percent last year at restaurants that stayed in operation for more than 12 months. Other Burger King franchisees experienced similar declines, said Gregory Thomas, a management consultant at Detroit-based McTevia and Associates.

"They have challenges ahead of them because turning around Burger King will not be easy and it will be expensive," said Howard Penney, an analyst with Atlanta-based SunTrust Robinson Humphrey. "Wendy's and McDonald's are doing well _ they won't sit back and let Burger King retake market share."

McDonald's is the fast-food market leader, with Burger King in second place.

The sale will be positive for the fast-food industry, because Diageo's heavy reliance on discounts and promotions at Burger King led to price wars and lower profit margins, Penney said.

Burger King's headquarters will remain in Miami and corporate layoffs are not foreseen, Clouser said.

_ Information from Times files was used in this report.