Burger King recently made a bold move by requesting a bankrupt franchisee, Meridian Restaurants, to put its restaurants up for sale. The fast-food burger chain is taking a stand, stating that it won’t support a process where Meridian retains ownership of the restaurants even after emerging from bankruptcy.
In addition to the creditors’ earlier filing, including lenders, distributors, and vendors, Burger King is joining the push for a sale of Meridian’s remaining 93 locations. A committee representing these creditors mentioned that there have been approaches from interested parties regarding a potential purchase of the restaurants, but unfortunately, Meridian did not engage in any discussions about a potential deal.
Burger King has specified that it prefers the restaurants to be broken up and sold by geographic region. This aligns with their recent policy, which limits the number of restaurants franchisees can operate, particularly within a specific area. Ideally, they want owners to be able to conveniently drive to each of their restaurants. To give you an idea, in Meridian’s case, Burger King suggests packaging 27 restaurants in Utah and Wyoming, seven in Arizona, 16 in Montana, 25 in Minnesota and the Dakotas, 12 in Kansas, and nine in Nebraska.
In their filing, Burger King made it clear that if Meridian insists on pursuing a reorganization path without the support of major creditors, they do so at their own risk. However, they firmly believe that it shouldn’t be at the expense of these creditors, who play a significant role in these cases.
Meridian sought Chapter 11 bankruptcy protection in March due to weak sales and increasing food and labor costs, becoming the second major Burger King operator to do so this year. While another operator, Toms King, was eventually sold in pieces, Meridian decided to reorganize under Chapter 11 to keep its restaurants.
Unfortunately, signs of financial trouble began to emerge as Meridian had to close 23 of its restaurants and hinted at the possibility of closing even more. The committee of unsecured creditors also expressed concerns about Meridian’s financial situation, emphasizing the urgency of conducting a sale process to avoid causing substantial harm to those creditors.
As a franchisor, Burger King holds significant influence in the bankruptcy process. They are a substantial creditor, being owed $4.6 million, including unpaid royalty and ad fund fees for the 93 open restaurants. Burger King has made it clear that they will not approve Meridian’s franchise agreements unless that amount is settled.
Furthermore, Burger King has the authority to approve potential buyers if the restaurants are to remain Burger King establishments. Naturally, these restaurants would be more valuable if they were to continue operating under the Burger King brand.
In their filing, Burger King expressed that they have informed Meridian about their disapproval of a scenario in which Meridian retains ownership of the restaurants during internal restructuring. Instead, they firmly believe that the best outcome for all parties involved is to market and sell the restaurants through an orderly sale process by geographic region, specifically targeting potential buyers who are qualified by Burger King’s standards. They view this sale as the only viable path they can support.
On June 2, Burger King held a meeting with James Winder, the managing member of Meridian who appointed himself as the chief restructuring officer. During the meeting, Winder presented a plan of reorganization where he would remain the owner of a significant number of restaurants. However, Burger King reiterated their position, emphasizing the immediate need for marketing and selling the restaurants.
It’s a challenging situation, but Burger King is standing firm and striving for a resolution that benefits all parties involved.
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