Arcos Dorados Hot IPO, McDonald's in Latin America (ARCO, MCD)

Arcos Dorados (NYSE: ARCO) will begin trading today and it is also coming out at a premium.  Arcos Dorados translates to ‘golden arches’ and it is the largest franchisee of McDonald’s Corporation (NYSE: MCD) fast-food chain restaurants with some 1,755 locations throughout Latin America.  This one got a premium pricing at $17 per share and it is expected to trade at a premium to the premium… maybe as high as $19 or $20 due to high demand from investors looking for the McDonald’s growth engine in Latin America.

We were expecting a price range of $13.00 to $15.00 but that price came in at $17.00.  The shares being sold were about 73 million but investors need to know that only about 9.5 million shares are being sold by the company.  Insiders are the big seller here in this IPO and it is worth noting that McDonald’s Corporation (NYSE: MCD) does not have an equity stake here even if it does control the food supply and controls the company’s standards at the restaurant level.

You can imagine that the demand was there for this when you consider how well McDonald’s has done in its same-store sales trends and in its share price.  Because of Latin America’s growth, the valuations are close to double that of McDonald’s Corporation (NYSE: MCD) here in America at roughly 30-times earnings versus about 16-times earnings here.  This appears to be at a slight discount to the value of McDonald’s franchisee in Japan.

A consortium of private equity groups own Arcos Dorados, but Chairman & CEO Woods Staton controls about 39% of the company but has a majority of the company votes even after the offering.

Bank of America, J.P. Morgan, Morgan Stanley, Citigroup, and Itau Unibanco Holding were the underwriters in the group.

JON C. OGG