Chipotle ipo

[talentdeficit]

to raise funding to expand without leveraging the parent brand's resources?

[Kneel B4 Zod]

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KB4Z - I am very surprised to hear that your buddy's firm would allow him to purchase stock in a company he is covering that is IPO'ing. I know at Goldman this was considered conflict of interest. And this was like 4 years ago, I'm sure securities rules have become even more tight, and firms cracking down harder.

For a non-IPO'ing stock, I know we could purchase stocks in companies we covered / worked on deals, but there was a fairly involved disclosure process. I mean, think how much more wealthy Mary Meeker etc. would be if she could buy shares in companies covered by Morgan Stanley that were IPO'ing!

-Al

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Probably buy side.

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he is buy side, and I didn't mean him personally...my bad

[Kneel B4 Zod]

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If they're some great deal, why would McD be selling them?

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liquidity?

[Aloysius]

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to raise funding to expand without leveraging the parent brand's resources?

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Also to possibly unlock McDonald's shareholder value, which some analysts feel is undervalued relative to its peers.

KB4Z - oh I get it. I'd snap that up for my fund too if I worked at a Fidelity or something.

-Al

[Ed Miller]

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to raise funding to expand without leveraging the parent brand's resources?

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Also to possibly unlock McDonald's shareholder value, which some analysts feel is undervalued relative to its peers.

KB4Z - oh I get it. I'd snap that up for my fund too if I worked at a Fidelity or something.

-Al

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Wall Street drives me nuts. It's like some alternate univere where up is down and left is right. McDonalds UNLOCKS VALUE by selling something it owns for 50 cents on the dollar?

The more I read of Wall Street doublespeak, the more Graham-and-Doddsish I get.

[MattSuspect]

err I got a coupon for a free burrito.

[Aloysius]

Ed - hahhahaha yeah... I can see how a mathematician such as yourself wants to strangle stuff...

Though I guess one could argue that because the parent is now more focused on its core brand (and has raised more funds to do so), this is "unlocked value", and that any spinoff, Chipotle in this case, will be more fairly valued by the market, no longer hidden as a subsidiary of the parent.

I remember reading that spin-offs (ar at least equity carveouts leading to spin-offs) often outperform the market relative to their peers, and sometimes the parent can to. I don't understand the dynamics of this very well (I was a banker, not an analyst), and wonder how much of this is market perception and how much is intrinsic.

Maybe this is a no-brainer, but any equity analysts care to weigh in?

Thanks.

-Al

[Duke]

I feel you, Ed.

~D

[El Diablo]

Ed,

This is often done because the enterprise value of a business is both more fully realized and visible as an independent entity rather than a subsidiary.

Specifically, let's say each $1 of fast-growing Chipotle sales is worth $5. Each $1 of slow-growing McDonald's sales is worth $1. (I know nothing of multiples in this industry, so don't worry about those specific numbers).

If Chipotle does 1% of McDonald's hamburger business (X), the total market value of McD's should be X + 5%(X). However, since people valuing McD's will be focused on the core bulk of the business, they will probably only give a little premium due to this little sideline business, valuing all of McD's at something like X + 2%(X).

By spinning it out, the business does not get lost in the analysis as a small part of McDonald's, so now there are two separate businesses worth X, 5%(X) respectively and if the Chipotle business is growing at a far faster clip than McD's, that can be rewarded instead of getting lost within the huge McD's business.

[wonderwes]

Buy! Buy! Buy!