(Burger King article updated with new information and stock price movement.)

MIAMI ( TheStreet) -- Shares of Burger King Holdings ( BKC) surged on heavy volume Wednesday as rumors of a potential private-equity takeover circulated on Wall Street.

"There's been a scuttlebutt about a possibility like that for a while now," Janney Montgomery Scott analyst Mark Kalinowski told TheStreet, citing a slew of private equity interest in other restaurant chains this year as well.
Burger King

"It may be best for the Burger King concept to be out of the public eye for a while and allow the new management to concentrate on fixing its challenges," Kalinowski said.

The Wall Street Journal originally reported that one firm interested in acquiring Burger King was 3i Group, a British private-equity firm, citing people familiar with the matter.

But 3i Group emphatically denied such speculations to the New York Times, saying it had no interest in the fast-food chain and that it, a middle-market firm, typically involves itself in much smaller deals than the $2 billion or $3 billion that would be necessary for a leveraged buyout of Burger King.

The Times went on to say that Brazilian-backed 3G Capital was among the interested parties in buyout talks with Burger King, led by Alexandre Behring, a former railroad executive who sat on the board of Jacksonville, Fla.-based CSX ( CSX). Behring spent a decade with Latin American private equity firm GP Investments.

At some point in 2008, 3G held a 6.7% stake in another struggling fast-food chain: Wendy's Arby's Group ( WEN), the Times noted.

>>Bankruptcy Watch: 20 Riskiest Restaurant Stocks

Burger King has been facing serious issues lately.

Burger King recently posted better-than-expected fourth-quarter profits of $49 million, or 36 cents per share, but the bottom-line figures were sharply lower than year-earlier results. Global comps fell 0.7%, with comps at U.S. and Canadian locations down 1.5%.

"Media reports ... seem plausible, but such a transaction remains highly uncertain," noted R.W. Baird analyst David E. Tarantino. The analyst boosted his price target on Burger King's shares, expecting the stock to gain 15.5% in the next year, up from his prior target for share price growth of 9.4%.

Tarantino said the likelihood of a Burger King buyout is speculative, citing Burger King's healthy cash flows and opportunities to grow productivity as it expands abroad.

Kalinowski said Burger King's problems aren't necessarily unfixable as a public company, but that a private company is often able to do things it wouldn't be able to do if traded on an exchange.

Kalinowski said Burger King will have to heal its relations with its franchisees, relationships that have been strained for some time. It also must find a way not to be a McDonald's ( MCD) clone, he argued.

"Burger King needs to figure out how to position itself more meaningfully away from McDonald's and still grow their business," he said.

Kalinowski estimated that at a $19 stock price, trading at 6 times multiple, Burger King's 2011 EBITDA could be $486 million.

The analyst has a neutral rating on Burger King shares, and a buy rating on McDonald's.

UBS ( UBS) analysts expect Burger King to fetch between $19 and $22 per share, and predict that a string of private-equity takeovers of fast-food chains is likely to follow, given the strong performance of industry darlings McDonald's and Chipotle Mexican Grill ( CMG).

Mexican restaurant operator Rubio's was taken private by Mill Road Capital earlier this year for $8.70 per share. In July an affiliate of Apollo Management took CKE Restaurants private for $694 million. CKE owned Hardee's and Carl's Jr. fast-food chains.

"The right private owner might help one or more of these chains eventually become better, and likely smaller, competitors to McDonald's ," UBS wrote in a note to investors. The note tapped Sonic ( SONC), Wendy's, Jack in the Box ( JACK) and Chili's operator Brinker International ( EAT) as other potential restaurant stocks that may be targets for private-equity buyouts.

Burger King, a public company since 2006, has been in the hands of private equity before, the Journal noted. In 2002, a group led by TPG Capital, Bain Capital and Goldman Sachs ( GS) Capital Partners bought Burger King for about $1.5 billion from Diageo ( DEO). The firms still owned nearly 32% of Burger King, and have significant representation on the board.

Burger King shares soared 14.7% higher to close at $18.86 Wednesday, with shares changing hands at nearly 22 times their average daily trading volume. Shares gained another 0.8% in after-hours trading. The stock dipped briefly mid-morning after 3i denied its involvement in a possible takeover.

Last week two analysts cut their ratings and reduced their price targets on Burger King shares, citing concerns regarding the company's full-year costs and sales.

UBS ( UBS) analyst David Palmer said Burger King's performance in fiscal 2011 "will depend largely on the net impact of the U.S. breakfast rollout." Year-over-year comparisons will be more difficult because 2010 sales were also boosted by the launch of the $1 double cheeseburger.

Burger King plans to launch an enhanced breakfast platform this fall in U.S. and Canadian locations that will include new menu products and Seattle's Best Coffee in an effort to better compete with McDonald's ( MCD) and Starbucks ( SBUX).

-- Written by Miriam Marcus Reimer in New York.

>To contact the writer of this article, click here: Miriam Reimer.

>To follow the writer on Twitter, go to http://twitter.com/miriamsmarket.

>To submit a news tip, send an email to: tips@thestreet.com.


>>See our new stock quote page.

Get more stock ideas and investing advice on our sister site, Stockpickr.com.
Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

If you liked this article you might like

Is Chipotle Really Healthier Than McDonald's and Burger King?

Is Chipotle Really Healthier Than McDonald's and Burger King?

Dunkin' Donuts Has Plans to Add a Jolt to Slowing Sales

Dunkin' Donuts Has Plans to Add a Jolt to Slowing Sales

The Key to Chipotle's Amazing Success

The Key to Chipotle's Amazing Success

Bank of America Leads Sector Higher on Mixed Economic Data

Bank of America Leads Sector Higher on Mixed Economic Data

Wages and Business: Simple Yet Complicated

Wages and Business: Simple Yet Complicated