McDonald’s Corp. could soon announce that it will spin off its Denver-based burrito chain, Chipotle Mexican Grill, in an initial public stock offering, according to analysts at Piper Jaffray.
Oak Brook, Ill.-based McDonald’s owns 90 percent of the chain. The remainder is closely held by investors, including founder and chief executive Steve Ells.
McDonald’s officials had said they were reviewing their options for Chipotle and another Colorado-based restaurant chain, Boston Market Inc.
“Management remains committed to its singular core brand focus,” Piper Jaffray analysts Peter Oakes and Scott Waltmann wrote in research notes dated Thursday and Friday. “We view an IPO as a probable outcome for the other venues, at least Chipotle.”
Another analyst, Ron Paul of Chicago restaurant consulting firm Technomic Inc., speculated that all options remain on the table for Chipotle.
“They’ve got to make a decision,” Paul said. “They’ve got to ramp it up and start opening at a faster pace, sell it back to the original owners or make a public offering. I think all things are being considered.”
Chipotle spokesman Chris Arnold declined to comment on the IPO speculation except to say McDonald’s is “exploring its strategic alternatives.”
McDonald’s spokeswoman Anna Rozenich said the company may say more in September.
Company executives will likely update analysts on their plans for Chipotle and Boston Market at meetings to be held Sept. 21 and 22, according to the Piper Jaffray research notes.
An IPO for Chipotle would pale next to McDonald’s 1.3 billion shares outstanding, but paring the company’s brands would aid the parent company’s free cash flow, analysts said.
A spokeswoman for Boston Market did not return messages, but McDonald’s chief executive Jim Skinner in January said the company did not intend to spin off Boston Market. At the same time, he said, “Chipotle’s value and potential might be maximized through alternative strategies that could include raising additional equity capital in the public or private markets.”
The 460-unit Chipotle chain is adding about 100 restaurants a year. It employs more than 12,000 people, including 110 at its headquarters in Lower Downtown. Chipotle’s systemwide sales increased 34 percent to $430 million in 2004. Restaurants had an average sales volume of $1.2 million, according to Technomic.
McDonald’s stock dropped 31 cents Monday to close at $33.17 on the New York Stock Exchange.
Staff writer Kristi Arellano can be reached at 303-820-1902 or karellano@denverpost.com.
