Burger King pops up on Wall St. menu

Private equity-owned chain raises $425M

By Steve Gelsi, MarketWatch

Last Update: 10:38 AM ET May 18, 2006

NEW YORK (MarketWatch) -- Burger King Holdings Inc.'s initial public offering heated up in its debut Thursday as the 52-year-old hamburger chain put its $425 million deal on Wall Street's menu in the richest U.S. restaurant IPO ever.

Burger King (BKC :

burger king holdings inc com BKC17.64, +0.64, +3.8% ) opened at $18 a share and changed hands at $17.59 a share on strong volume of 15.2 million shares in morning action on the New York Stock Exchange.

The company priced 25 million shares atop its $15-$17 a share range.

Including its 3.75 million share overallotment, the IPO will raise $489 million, outweighing the $389 million raised by Domino's Pizza (DPZ :

dominos pizza inc com

DPZ25.35, +0.07, +0.3% ) in 2004.

J.P. Morgan, Citigroup, Goldman Sachs, Morgan Stanley and five other banks took part in the IPO, which comes after the company was bought for $1.5 billion from Diageo in 2002 by Texas Pacific, Bain Capital and Bain Capital.

Burger King has been touting itself as a turnaround story with the closure of underperforming stores and same-store sales growth for the past two years.

Meanwhile, restaurant IPOs such as Chipotle (CMG :

chipotle mexican grill inc cl a

THI26.92, -0.38, -1.4% ) have been hot.

"Despite Burger King's checkered operational history, lower cash-flow-margin profile and significant debt burden, the company appears to be coming to market at a pretty attractive price if you think it can meet management's expectations for top- and bottom-line growth that exceed projections for the industry," Renaissance Capital said in its featured IPO column. See featured IPO column.

On April 7, Burger King named John Chidsey as chief executive officer as turnaround specialist Greg Brenneman stepped down to return to his private equity firm, TurnWorks Inc.

In the nine months ending March 31, Burger King reported net income of $37 million on revenue of $1.52 billion, compared to $45 million in net income on $1.44 billion in revenue in the year-ago period.

Dennis Lombardi, a food industry consultant at WD Partners, said Burger King needs to build on the popularity of its Whopper sandwich and take a page from rival McDonald's playbook and focus on pleasing the customer.

Francis Gaskins of IPO Desktop has graded Burger King's initial public offering as a C+ partly because it's got a strong brand and healthy cash flow.

He said the company's price-to-earnings ratio is 46 based on the company's nine-month earnings performance.

McDonald's (MCD :MCD34.85, +0.29, +0.8% ) , by contrast, carries a P/E ratio of 16.6 and Tim Hortons currently trades at about 30.

Gaskins was lukewarm at best on the offering, however, calling the IPO, "yet another leveraged buy-out going public (again), with a disabled balance sheet."

The company said it expects to receive IPO proceeds of about $393 million -- $350 million of which will go toward debt payments to its private equity owners, with the balance used for general business purposes.

Following this offering, Burger King Holdings, Inc. will remain majority-owned by Texas Pacific Group, Bain Capital Partners and the Goldman Sachs Funds.

The chain of more than 1,200 company-owned and 9,882 franchised restaurants around the world traces its roots to 1954, when entrepreneurs James McLamore and David Edgerton opened the first Burger King restaurant in Miami, Fla.

Other milestones include the launch of the Whopper in 1957 and the 1974 introduction of its "have it your way" positioning.

In 1967, the founders sold the chain to Pillsbury, which itself got swallowed up in corporate mergers that results in the formation of Diageo (DEO :

The debut of Burger King marks the beginning of a busy two-week run-up to Memorial Day for IPOs with MasterCard and Vonage on deck next week. See full story. End of Story

Steve Gelsi is a reporter for MarketWatch in New York. MarketWatch staff writer Gabriel Madway contributed to this report.