Deals May Strain On Refco News;

Burger King shares rise in market debut

Thu May 18, 2006 11:30 AM ET

(Adds valuation information, analyst comment)

NEW YORK, May 18 (Reuters) - Shares of Burger King Holdings Inc. (BKC.N: Quote, Profile, Research), the world's second-largest hamburger chain, rose as much as 6 percent on Thursday in their market debut, a sign of strength for IPOs despite a slump in the stock market.

The initial public offering of 25 million shares, which represents a 19 percent stake in the company, was worth about $425 million. It marks the fourth restaurant company to hit the market this year.

The shares were up 3.6 percent at $17.64 in morning trade on the New York Stock Exchange, retreating from opening gains. On Wednesday, the shares priced at $17, the high end of the previously expected range.

"I'm surprised it's not higher," said Sal Morreale, who tracks IPOs for Cantor Fitzgerald in Los Angeles. "I heard from a lot of people yesterday that the deal was heavily oversubscribed."

Burger King, which was bought by private equity firms Texas Pacific Group, Bain Capital and a Goldman Sachs Group Inc. affiliate (GS.N: Quote, Profile, Research) in 2002 for about $1.5 billion, plans to use the proceeds to pay down debt.

The chain began as a drive-up Miami hamburger stand in 1954, but has grown to sell its burgers, fries and milkshakes in more than 11,000 restaurants in 65 countries, according to a filing with the U.S. Securities and Exchange Commission.

Its total restaurants are still dwarfed by No. 1 hamburger chain McDonald's Corp. (MCD.N: Quote, Profile, Research), the world's largest fast-food company with some 30,000 restaurants in 119 countries.

Burger King had struggled earlier this decade from mismanagement and declining revenue, but began to revive after the private equity firms bought the company from British drinks company Diageo Plc (DGE.L: Quote, Profile, Research).

Miami-based Burger King's current stock price trades at about about 47 times earnings based on its nine-month profit, said Francis Gaskins, president of IPO Desktop, an independent research firm based in Marina del Rey, California.

That's still a fraction of McDonald's valuation. McDonald's trades at 17.5 times its 2005 earnings. Chipotle Mexican Grill Inc. (CMG.N: Quote, Profile, Research), spun off from McDonald's earlier this year, is trading at about 65 times earnings, Gaskins said.

"Burger King is not in that category," he said, referring to Chipotle, which sells freshly prepared fast Mexican food, a rapidly growing trend. "You have more assurance of top line revenue growth with Chipotle."

Burger King has boosted sales with new menu items like the Angus burger, more breakfast offerings and quirky advertising. It had posted eight consecutive quarters of increased same-store sales, but stumbled in the first quarter of this year.

JP Morgan Securities Inc. and Citigroup Global Markets Inc. were the lead underwriters on the deal.