Timing of BK CEO Switch Questioned
By George Anderson
At least two experts on initial public offerings (IPO) find the timing of Greg Brenneman’s resignation as CEO of Burger King, at best, curious and, at worst, harmful, with the company’s first public sale of stock expected soon.
Reena Aggarwal, professor of finance at Georgetown University, said, “With a large IPO like this, you want investors to be focused on valuation issues – not on the implications of a management change.”
Frederick Lipman, an IPO specialist with Blank Rome, said it is “rare” for executive changes such as this to take place noting, “management is the key element of an IPO.”
Burger King has tapped John Chidsey, the fast food operator’s president and CFO, to replace Mr. Brenneman. He immediately sought to quash any negative rumors surrounding the management change. “It portends no bad news,” he said. “Everything is fine with the company.”
Mr. Brenneman, known for turning around troubled businesses, said, “I was really brought in…. to do a certain piece of this turnaround.”
The Burger King board and Mr. Brenneman chose the timing now, he said, because “it was better to go to investors with the long-term, stable management team that is going to be here.”
Burger King expects to conduct its IPO by June 30 pending approval from federal regulators. The company hopes to raise up to $400 million.
Moderator’s Comment: What is your reaction to the timing of Burger King CEO Greg Brenneman’s decision to resign from the company? What will this mean
for the company’s IPO as well as issues it has been dealing with, such as franchisee relations, menu development, marketing, etc.? –
George Anderson – Moderator
People considering IPO’s have only management’s track record on which to make a decision. Having a CEO leave during the IPO process only opens the company up to legal woes. If management is not prepared to complete the process and stay on for a reasonable time, then stop the IPO process. This one will wind up in the courts, I predict.
While it is strange that a few months prior to the IPO, the CEO resigns/is asked to leave/is fired; please remember that more than a third of the board is made up of Goldman Sachs, Bain Capital & Texas Pacific Group execs. They are savvy individuals who understand the financial marketplace. Additionally, Goldman Sachs is one of the co-managers of the underwriting. One can safely assume that the change in leadership was discussed, in advance, with the other underwriters and, while a momentary distraction, should not have any negative impact on the IPO. Moreover, the new CEO is a known commodity to both the board and the investors and the underwriters as previously he has been President & CFO of the company. Having held various positions within Burger King, the investment community will feel very comfortable with him. Thus this is, in my opinion, much ado about nothing.
This is poor timing, and a predictor of troubles at BK. The CEO doesn’t leave a few months prior to an IPO. This will certainly have a negative impact on this stock price, since the current CEO will be unproven, in terms of a track record of company achievement and performance. Investors want to see a proven history of corporate management of change and positive growth. The new CEO is being set-up for disaster in a competitive industry where there is very little room for error. His ability to garner shareholder support to prepare the company for and IPO at a premium price will not be as successful compared to one which might be offered later. I wouldn’t be surprised to see a delay of the IPO until the company can provide a more stable management history.
It might not be a bad idea, and one that would ease public criticism of the move, if BK postponed their IPO. However, this could then indicate that something IS wrong and needs to be fixed. So the resignation will have somewhat of a negative affect on the whole, no matter what they do. Of course, they could always say that Greg was having so much fun wearing the “King” outfit he went on to pursue an acting career and then no harm would be done.
As an investor, I would be glad he resigned now and not 15 minutes after the public offering. Perhaps if investors followed senior management players the same way they follow the players on their favorite sports teams, this might make a difference. However I find that most senior managers at large corporations are only names. Seems to me it’s always the numbers that people are interested in.
With 11 CEOs since 1989, how consistent could Burger King’s direction be? How can any company sustain a decent performance with that statistic? Everyone knows that fast food restaurants suffer high staff turnover, but Burger King’s organization is truly outstanding. IPO buyers often flip the shares after a few hours or a few days. The franchisees have to live with management. If the CEO thought the future of Burger King was truly spectacular, would he leave voluntarily? If the shareholders-to-be want to hold the stock for the long term, how can they measure management-to-be’s performance?
The “Cheesy Guy?” The plastic King running for a touchdown or looking in your bedroom window? For the last two years, BK’s ad campaigns have been downright creepy. I often wondered during the first season of these ads how fast they’d jerk them off the air, and damned if they didn’t renew them for a second go-’round!
Consumer acceptance and sales cure all ills. Ditching the CEO who approved this highly questionable customer communication is a great first step, and hiring an agency that can create better ad campaigns would be the second. Fast is good, sooner is better.