Burger King IPO Announcement: Technical Violation of Securities Act?

Bill Sjostrom —  1 February 2006

Burger King announced today that it plans to file an IPO registration statement with the SEC in March (click here for a Reuters article). According to BK’s CEO: “Our goal has always been to take Burger King public . . . . We believe the transparency and stability in ownership offered by being a public company will benefit our employees and franchisees for years to come.”

BK was purchased in 2002 from Diageo PLC by a group of private equity funds for about $1.5 billion. The funds are likely looking to partially cash out, so it will be interesting to see how many shares they sell in the deal. The timing of the IPO is probably motivated in part by the 50% increase in Wendy’s stock this past year and the strong showing of Chipotle’s recent IPO.

As for the possible Securities Act violation, section 5 of the Act prohibits offers to sell a security unless a registration statement is on file with the SEC. “Offerâ€? is broadly defined as “every attempt or offer to dispose of, or offer to buy, a security or interest in a security for value,â€? and the SEC interprets this to include any publicity that contributes to conditioning the public mind or arousing public interest in the issuer or its securities. Under this definition, it looks like Burger King has made an offer. There are, however, some safe harbor rules pursuant to which a company can disclose a proposed offering without it constituting an “offer.” Rule 135, in particular, may save BK from a section 5 violation, but it depends on whether its announcement contained a required legend. Regardless, statements from BK’s CEO seem to go beyond what is allowed under Rule 135. Incidentally, new Rule 163A which establishes a bright-line exclusion from the definition of offer for communications made more than 30 days prior to filing does not appear to apply because BK’s communication references the securities offering.

In the end, does it really matter? Probably not in this situation, and the SEC recognizes this. The remedy for a slipup of this nature (assuming it is one) is typically a 30-day cooling off period between the technical violation and the SEC declaring the registration statement effective. Given BK clearly will not be in a position to go effective on its IPO registration statement within 30 days, it looks like no harm, no foul.

3 responses to Burger King IPO Announcement: Technical Violation of Securities Act?


    No. To be a WKSI, the issuer has to be S-3 eligible. To be S-3 eligible, the issuer has to have been public for at least 12 months. BK does not meet this requirement.


    Could BK be a WKSI under the new rule 163? I don’t teach Sec Reg, so I’m not up on the new rules.

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