If you’re familiar with the movie Wall Street, Bud Fox (played by Charlie Sheen) relentlessly tries to get a meeting with business dynamo Gordon Gekko (played by Michael Douglas) so that he can become Gekko’s go-to stockbroker.
When Fox finally gets his opportunity -- Gekko asks Fox to buy Bluestar Airlines stock -- he hangs up the phone and screams “Yeah! Woooo! I just bagged the elephant!”
Restaurant Brands International (QSR) CEO José Cil must feel a little like that. On Wednesday, the restaurant holding company announced Patrick Doyle would become its Executive Chairman.
The announcement is arguably more important than any acquisition or change in business strategy. Here’s why.
Doyle Rebuilt Domino’s Pizza
Patrick Doyle wasn’t a hired gun tasked with turning around Domino’s Pizza (DPZ). When Doyle accepted the job as CEO in January 2010, he had been President of Domino’s USA since September 2007 and with the company for a decade before that.
“Patrick Doyle has been a rising star at Domino’s Pizza from the beginning,” then-CEO David Brandon said in the Jan. 5, 2010, press release. “He has had numerous leadership successes at Domino’s and has long been identified as the best choice to be my successor.”
Doyle went to work overhauling its products and processes including introducing a new recipe and dramatically improving its digital technology to drive online and mobile sales. The company ran ads at the time explaining that its pizza was so bad it had to toss out the old recipe and come up with one that customers would enjoy.
And boy did his plan work.
Between March 7, 2010 -- Doyle’s first day as Domino’s CEO -- and when he officially stepped down on June 30, 2018, the company doubled its systemwide sales while its share price appreciated by 1,931%. Since his departure, Domino’s stock’s gained just 32%.
The only way to describe Doyle’s performance is to say it was otherworldly. Beyond compare.
Which is why the announcement is such a big deal. Doyle’s skill set can help Restaurant Brands -- it owns Burger King, Popeyes Louisiana Kitchen, Tim Hortons, and Firehouse Subs -- grow their business and more importantly, their share price.
Since Burger King bought Tim Hortons in December 2014, its stock’s gained 81%. Over the same period, the S&P 500 gained 98%. It has failed miserably to reward shareholders.
José Cil and the board are hoping Doyle can change the company’s fortune when it comes to the markets.
Doyle’s Heavy Compensation
To bag the elephant, as it were, Doyle’s been granted stock options and awards that are currently worth $200 million. These include two million stock options that vest in 2027, 500,000 restricted share units that vest over five years, and 750,000 performance share units that pay out based on the company’s share price over the next five years.
If it all plays out successfully, Doyle’s compensation package -- he gets no base salary or cash bonuses -- could be worth as much as $370 million. Further, he bought 500,000 shares with his own money for $30 million. If the shares compound at 15% annually over the next five years, he’ll double his money.
The pay package is one of the highest in Canadian corporate history -- Restaurant Brands is based in Southern Ontario -- but the company feels Doyle’s worth it and then some.
“Patrick's appointment as Executive Chairman is a huge addition to the already strong leadership team that we have built over the past few years. This is part of our long-term strategy to accelerate growth in our restaurant brands and profitability for our franchisees and drive shareholder returns that we believe the company is very capable of delivering,” stated Daniel Schwartz and Alex Behring, current co-Chairmen of the Board of Directors.
As the company’s press release stated, during Doyle’s tenure as Domino’s CEO, he delivered 29 consecutive quarters of same-store sales growth while also creating $11 billion in shareholder value.
3G Capital Needs a Home Run
The press release announcing Doyle’s appointment states that 3G Capital, the Brazilian private equity firm that acquired Burger King in 2010 and then added Tim Hortons, Popeyes, and Firehouse Subs, has generated total shareholder returns of 21x the original investment over 12 years ago.
The reality is that much of that was generated between 2010 when 3G acquired Burger King and 2014 when it acquired Tim Hortons for approximately $11 billion.
In the meantime, Restaurant Brands’ long-term debt has grown by 44% from $8.94 billion at the end of 2014 to $12.85 billion as of Sept. 30. Its debt accounts for more than 50% of its assets and 66% of its market capitalization.
It needs growth now because if it doesn’t lower its debt sooner rather than later, it will eventually be faced with higher interest rates when refinancing its debt.
Doyle’s hiring gives it greater bargaining power with lenders which should keep the debt issue at bay for the foreseeable future.
In the quick-service restaurant industry, I don’t think you can get a more high-profile hire than Patrick Doyle.
Is it a difference-maker? We’ll see in five years.
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