Restaurant Brands International has agreed to pay $18.2 million to end a two-year-old legal battle over its $1 billion acquisition of the former giant Burger King franchisee Carrols Restaurant Group.
The lawsuit, filed in in 2024 in the Delaware Chancery Court, was led by a pension fund, the Plymouth County Retirement Association, and three other investors.
They accused Burger King of using its position as the franchisor to force Carrols, which operated about 1,000 locations at the time, into selling the company at $9.55 per share, or about $1 billion.
The lawsuit also named Matthew Perelman and Alexander Sloane, large Carrols shareholders who were on the board at the time.
RBI, Perelman, and Sloane denied the allegations. They have made no admission of wrongdoing in the settlement and argue that the deal provided Carrols and its stockholders with “substantial benefits.”
Carrols had grown primarily through acquisitions over the years, in part because of a unique deal it was given a decade earlier giving it the right of first refusal to buy any Burger King location in several states. That enabled the company to amass 1,000 locations.
But Carrols’ size began to look problematic as Burger King and RBI executives started extolling the virtues of smaller-scale franchisees who could drive to all of their locations.
The lawsuit, however, argued that this change in strategy ran headlong into Carrols’ plans to get back into buying restaurants. The franchisee was coming off a strong 2023 and had expressed a desire to get back into acquisitions.
Burger King wanted Carrols to use its capital spending to remodel stores instead. Those remodel requirements also kept Carrols from exploring a sale in 2023, citing the cost of those upgrades.
The lawsuit argued that analysts valued Carrols well above the $9.55-per-share price that RBI paid, but the franchisee had little choice but to accept it because it wouldn’t be allowed to buy more restaurants.
Burger King acquired Carrols in a bid to speed up remodels and split the restaurants between many, smaller franchisees rather than one large one.
For the company, the effort is crucial to improve its long-term prospects. Burger King is working to get its 6,700 U.S. locations remodeled by 2028. The company is actively working to sell the Carrols restaurants to franchisees, including some of the chain’s former executives.
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