Burger King IPO: Demand Moderate (BKC)

Burger King (BKC) did price its 25M share IPO at $17.00, which was at the high-end of the $15.00 to $17.00 range. J.P. Morgan was the Lead Manager and co-managers were Citigroup, Goldman Sachs, Morgan Stanley, Wachovia Securities, Bear Stearns, Credit Suisse, Lehman Brothers, and Loop Capital Markets. The details of this have already been covered, but the company has the following metrics: almost 90% of the 11,000 restaurants are franchises, although that number varies from source to source; the company's Fiscal Year June 2005 revenues were $1.94 Billion with net income of $47 Million.

The company was purchased by private equity firms Texas Pacific Group, Bain Capital and Goldman Sachs Capital Partners -- unit of Goldman Sachs (GS) -- which bought Burger King in 2002 for $1.5 billion after a period of slumping sales. At the $17.00 pricing, it looks like the implied market cap of approximately $2.3 Billion, and an enterprise value with the debt of approximately $3.5 Billion. At the offering this represents about 19% of the shares being in the free float (see implications below).

There had been some last minute hopes that the pricing would be a tad above the $17.00 mark or that there would be a slightly higher number of shares. The demand on the deal was moderate from the usual suspects in IPO's just last week, but the demand as an aggregate still came in enough to be at the high-end because of the IPO-related funds and food-related funds that really have almost no choice but to own Burger King.

Two concerns on the deal were the fairly recent resignation of the CEO and an increase in financing charges after a refinancing, but the growth prospects were the main concern voiced last week as the company is already the number two or number three fast food chain depending on which reports you read.

There are some things to consider that this really has going for it. The 5% market correction we have seen in recent days may have also kept a lid on the pricing. There are many funds that will have no choice but to own the deal. With a $2.3 Billion market cap and only 19% of the shares being in the float, there just may not be enough shares to go around. After we get a secondary in couple or few months from the 81% owner group there may actually be enough float for the company to become a candidate to be in the S&P Mid-Cap 400 Index or a candidate for the S&P 500, but that is purely based on history influencing thoughts and personal opini