Burger King Holdings Inc , the second biggest U.S. hamburger chain, is in talks to sell itself to investment firm 3G Capital, a source briefed on the situation said on Wednesday.

Shares in the company rose nearly 15 percent on Wednesday following reports overnight that it was in talks on a sale. Burger King's shares closed up $2.41 to $18.86.

The second-biggest U.S. hamburger chain has underperformed McDonald's Corp and other fast-food chains. As of Tuesday's market close, shares in Burger King had posted a year-to-date loss of nearly 13 percent, while McDonald's shares gained 17 percent in the same period.

The Miami-based company, which has a market capitalisation of about $2.5 billion (1.6 billion pounds), debuted as a public company in May 2006 with an initial share price of $17.

3G Capital, a little known investment firm, did not return requests for comment and a Burger King spokesman declined to comment. News of the negotiations with 3G Capital was first reported by the New York Times.

Talks are advanced and a deal could potentially be reached in the coming days, the source who spoke to Reuters said. The source declined to be identified because the talks are not public.

We would view this as an excellent opportunity for investors who have been in the shares to cut their losses (or take some modest gains, depending on when shares were bought), Janney Montgomery Scott analyst Mark Kalinowski said in a note.

Burger King may actually be better off as a privately held entity at this point in its history, Kalinowski added, referring to the company's strained relations with franchisees and its struggles to better compete against McDonald's, which has been expanding its share.

Begun in 1954, this would not be the first private equity takeover for Burger King. In 2002, British drinks giant Diageo sold it a group of funds controlled by TPG Capital LLC, Bain Capital LLC and Goldman Sachs . The private equity group still owns about a third of the company.

While we would not consider a transaction a foregone conclusion, we see several factors that make a buyout plausible, R.W. Baird analyst David Tarantino said in a note.

Private equity firms have become increasingly active and last month was the busiest August since 1999 in terms of the value of merger and acquisition deals struck.

A sale would give Burger King's current private equity investors a logical exit from their positions, Tarantino said.

One of the potential suitors named in press reports, British private equity firm 3i Group Plc , distanced itself from a possible deal.

We can confirm that we are not in discussions with Burger King, a spokeswoman for 3i said.

Burger King last week forecast weak demand during its new fiscal year due to the U.S. economy's slow pace of recovery and government austerity programs in several European countries. The company said it was unsure how costs for key ingredients like beef would impact the company.

Its shares hit a low of $16.30 in mid-August, but surged to $19.50 in premarket trading on Wednesday.

In July, an affiliate of Apollo Management wrapped up its $694 million acquisition of Carl's Jr parent CKE Restaurants Inc and a Golden Gate Capital affiliate bought On the Border Mexican Grill & Cantina from Brinker International Inc for about $180 million.

Wendy's/Arby's Group Inc Chairman Nelson Peltz in June said an unnamed party expressed interest in a potential deal involving the fast-food company.

Meanwhile, chains like California Pizza Kitchen and Benihana Inc are seeking buyers.

(Reporting by Megan Davies and Paritosh Bansal in New York, Simon Meads in London and Lisa Baertlein in Los Angeles; Additional reporting by Krishna N. Das in Bangalore and Ben Klayman in Detroit; Editing by Dave Zimmerman, Gunna Dickson, Leslie Gevirtz and Carol Bishopric)

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