Arcos Dorados (ARCO)

[momentum74]

Re Pasted ARCO CEO buying 2 million shares at IPO price

By Lynn Cowan
Of DOW JONES NEWSWIRES

The world's largest McDonald's Corp. (MCD) franchisee encountered supersized demand for its initial public offering Thursday, with the stock rising 24% in early trading.
Arcos Dorados Holdings Inc. (ARCO) opened at $21 a share on the New York Stock Exchange, up 23.6% from its initial public offering price of $17; shares were changing hands recently at $21.10, up 24%. A total of 73.5 million Class A shares, 11 million more than expected, were sold at a price above its expected $13 to $15 range.
Headquartered in Argentina but incorporated in the British Virgin Islands, Arcos Dorados holds the exclusive right to own, operate and grant franchises of McDonald's restaurants in 19 countries in Latin America and the Caribbean. It's the largest fast food chain in that region, with 12% of systemwide sales in 2009, according to Euromonitor. Among the countries it operates in are Brazil, Chile, Mexico, Colombia, Argentina and Peru.
Latin America and the Caribbean are fast-growing areas for McDonald's as more people in that region gravitate towards fast food chains. Euromonitor estimated that the fast food segment there grew 97% from 2004 to 2009, 27 percentage points higher than the food service industry as a whole in those regions. The compound annual growth rate equates to 14.5%, well above the 3% seen in the U.S. fast food industry.
And among the chains in Latin America and the Caribbean, McDonald's rules, with nearly three times the sales of its closest competitor, Burger King, according to Euromonitor. Further expansion is a given: Arcos Dorados has committed to open at least 250 new restaurants from 2011 to 2013 under its agreement with McDonald's.
Of the total shares sold, the majority--50,000--came from prior owners, so those proceeds won't benefit the company. Sellers included Gavea Investment AD, LP, Capital International Private Equity Funds, DLJ South American Partners LP and DLJSAP Restco Co-investments LLC.
Arcos Dorados' largest shareholder, Chairman and Chief Executive Woods Staton, didn't sell any of his stake, and in fact purchased 2 million more shares at the IPO price. Staton, who continues to retain more than 75% of the voting control of the company post-IPO, was the president of McDonald's South Latin America division from 2004 until August 2007, when Arcos Dorados purchased McDonald's Latin American business.
The company expects to use most of its IPO proceeds for capital expenditures, including for opening and upgrading restaurants.
Total revenues rose throughout the economic downturn, increasing 13% to $3 billion in 2010. Although operating income declined 1% in 2010 compared to 2009, net income rose 32% to $106 million in 2010 as net interest expenses, derivative losses, foreign exchange and income tax expense went down. Comparative restaurant sales increased 15% in 2010 for both company-operated and franchised stores.
One of the biggest risks for Arcos Dorados is its operations in Venezuela, where it has 138 restaurants. The country's currency controls eroded its financial performance there, with Venezuelan revenue in 2010 declining to 6% from 17% of total company revenue in 2009, and net income declining to 2% from 9% in the same periods.
Arcos Dorados has also been engaged in tax disputes with Venezuelan tax authorities that resulted in temporary closures of its restaurants in 2005 and 2008. In addition, the country's current government has promoted increased state ownership of privately run businesses and corporations, so there's always a threat that Venezuela could try to transform McDonald's outlets into state-run entities
Bank of America Merrill Lynch (BAC), J.P. Morgan Chase & Co., Morgan Stanley (MS), Itau BBA USA Securities Inc. and Citigroup Inc. (C) managed the company's IPO.

-By Lynn Cowan, Dow Jones Newswires; 301-270-0323; [e-mail]

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04-14-11 1008ET
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