Invest Like the Best with Patrick O'Shaughnessy
· Patrick O'Shaughnessy, Daniel Schwartz
[00:00:00] S0: What was the most stressful period for you as CEO of Burger King? What was that moment like? [00:00:00] S2: I try not to get too stressed work-wise. I try to always keep things pretty even-keeled. I had this basketball coach who once said, "Pressure is something you put in a tire." I always try to keep that in the back of my head. I'd say there was one time that I was pretty stressed. This was the summer of 2014. We had bought Burger King in 2010, billion and change of equity. Within a couple of years, it was objectively a great outcome. Everyone got all their money and then some back. And by mid-2014, we were like a $10 billion company and we had owned 70% of the company. So, objectively good. And we all decided, Alex, myself, and Josh Kobza, who was our CFO, we all got really excited about buying Tim Hortons. And we were actively negotiating an acquisition, a merger of Tim Hortons. Alex was meeting with their CEO on a regular basis. Alex was our executive chairman, and I was the CEO then. And we're in the middle of doing this prolonged, negotiated deal. We get wind from the reporters at Bloomberg that they're going to run an article on us at Burger King, really centered around our ages, the ages of the management team. We're trying to buy this iconic Canadian institution, asset – Tim Hortons. And there were some probably reservations on the Tim Hortons side around us and business and Burger King. And so we're in the final stages of negotiating this deal. The article comes out. The title is "Burger King is run by children."
· Daniel Schwartz, Alex Behring
[00:00:00] S2: I try not to get too stressed work-wise. I try to always keep things pretty even-keeled. I had this basketball coach who once said, "Pressure is something you put in a tire." I always try to keep that in the back of my head. I'd say there was one time that I was pretty stressed. This was the summer of 2014. We had bought Burger King in 2010, billion and change of equity. Within a couple of years, it was objectively a great outcome. Everyone got all their money and then some back. And by mid-2014, we were like a $10 billion company and we had owned 70% of the company. So, objectively good. And we all decided, Alex, myself, and Josh Kobza, who was our CFO, we all got really excited about buying Tim Hortons. And we were actively negotiating an acquisition, a merger of Tim Hortons. Alex was meeting with their CEO on a regular basis. Alex was our executive chairman, and I was the CEO then. And we're in the middle of doing this prolonged, negotiated deal. We get wind from the reporters at Bloomberg that they're going to run an article on us at Burger King, really centered around our ages, the ages of the management team. We're trying to buy this iconic Canadian institution, asset – Tim Hortons. And there were some probably reservations on the Tim Hortons side around us and business and Burger King. And so we're in the final stages of negotiating this deal. The article comes out. The title is "Burger King is run by children." [00:00:00] S1: I wasn't a help for it.
· Alex Behring, Daniel Schwartz, Patrick O'Shaughnessy
[00:00:00] S1: I wasn't a help for it. [00:00:00] S2: I'm touring restaurants in India with our local Master Franchise joint venture partners. We're driving around. I don't know if you've spent much time in Mumbai. We're driving around stuck in bumper-to-bumper traffic. And the article comes out, I'm reading, and I'm like, "This is just the worst article that could have come out at the worst time." Meanwhile, everyone's writing us, "Oh, congrats, congrats. What a great investment. Really cool." And I was like, how are we going to get ourselves out of this? This is exhibit A for the board to not want to do a deal with us. But we worked, and Alex… [00:00:00] S1: A lot of negotiation. It took six months. [00:00:00] S2: Yeah. I was pretty stressed then. It took a lot of work to get them to be excited about us, and we had to point out all the factual inaccuracies in the article. [00:00:00] S0: I'm going to come back to the "Everyone being young" thing just in a minute, because I think it's so interesting. But when we first had lunch, you told me this story about the funny back and forth with Tim Hortons and your initial outreach to them. Can you tell that story as well?
· Patrick O'Shaughnessy, Alex Behring, Daniel Schwartz
[00:00:00] S0: I'm going to come back to the "Everyone being young" thing just in a minute, because I think it's so interesting. But when we first had lunch, you told me this story about the funny back and forth with Tim Hortons and your initial outreach to them. Can you tell that story as well? [00:00:00] S1: Sure. I was able, through a common friend, to get a dinner with the CEO near Toronto. And I flew out there. We had a great dinner, really hit it off. And he was open to potentially receiving a proposition to put the companies together, which we maybe a week later, or two weeks later, went to Warren. And Warren was super, super reassuring as we talked about, in a near instant. I mean, I remember 10 seconds into the call with Warren, he really, really praised the quality of the business. And Dan and I always go back to that and say how right he was. And we didn't even fully appreciate how good a business it ultimately was, which we do now. But anyway, so that went really well. So we had the financing lined up. He was open to receiving a proposition, we put a proposal together and we presented to him. Then there was radio silence for a week. We felt radio silence for a week is normal. This is a big deal. They're deliberating about it. But then that became two weeks and three weeks and four weeks. [00:00:00] S2: I had only bought one company at that point. So I'm like, "Alex, is this normal?" And he was like, well.... [00:00:00] S1: I was at first saying that it kind of is…
· Alex Behring, Daniel Schwartz
[00:00:00] S1: I was at first saying that it kind of is… [00:00:00] S2: He's like, "Don’t worry." Because he wanted me to focus on the business. He's like, "No, don't worry. It's totally normal. Totally normal. Totally normal to take eight weeks or seven weeks." [00:00:00] S1: So six weeks into it or something, I get an email back, basically saying, "Listen, thank you so much for your proposal. We're not prepared to move forward." And something like, "Best of luck with your future endeavors." And it only had two lines, maybe two and a half lines. At which point, I picked up the phone and called this guy whom I had hit it off so well with. And I said, "Listen, thank you for your email. I mean we see David, can you elaborate a little further?" To which he answered, "No, I can't." I mean, what else do you say? You know, I hung up and I called him. He said, "How did it go?" I said, "Well, not so well, kind of short." And then we did some more work and made improvements to our offer. And then we sent it to him, revised the offer to them, in the hopes that that would be enticing. And then we were prepared again to sit and wait for an extended period of time, only to be surprised and get a response back in hours. Two, or maybe a day. [00:00:00] S2: Within a day. [00:00:00] S1: I think I want to say less than a day. Saying, "Thank you for your offer. We are not prepared to move forward. And we wish you, again, the best of luck with your future endeavors." [00:00:00] S2: The good news is, neither of us are shy, and both of us are persistent.
· Daniel Schwartz, Alex Behring, Patrick O'Shaughnessy
[00:00:00] S2: The good news is, neither of us are shy, and both of us are persistent. [00:00:00] S1: So now we're really scrambling and trying to find every possible way of engaging in the dialogue and figuring out what it is that we had to do, if anything, to get a conversation going. And then ultimately, we found ways by means of which we're able to meet with him and his chief financial officer. And I was able to then drag Dan with me again, and engage into a conversation and gain some insight in terms of what is it exactly that we would need to do to get these companies together? And then, after some time in that conversation, we were able to have a revised offer that they thought was then enticing enough. We then moved on to the usual drafting and legal and due diligence phase of it, only to receive a call on a Sunday afternoon from the Wall Street Journal saying, "Listen, we know you guys are about to announce a deal. We're going to go live with it. And you guys have 30 minutes to decide whether you want to say something." It was delicate at the time because Tim Hortons is a brand of a magnitude that I almost want to say that I'm unsure whether it exists in the US, in terms of a consumer brand. [00:00:00] S0: It's ubiquitous in Canada.