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McDonald’s Operator Arcos Dorados Soars After Initial Offer

McDonald's in Argentina
A patron eats a BigMac meal with fries and a drink in a McDonald's restaurant in downtown Buenos Aires. Photographer: Diego Levy/Bloomberg News.

Arcos Dorados Holdings Inc., McDonald’s Corp.’s biggest independent franchise operator, gained 25 percent in its first day of trading after raising $1.25 billion in an initial public offering.

Arcos Dorados, based in Buenos Aires, raised 33 percent more than it originally sought, selling 73.5 million shares for $17 each yesterday, according to a company statement and data compiled by Bloomberg.

The company, which has 1,755 McDonald’s stores in Latin America and the Caribbean, has almost quadrupled its net income since 2007 when it acquired McDonald’s business in the region for $698 million, its prospectus said. Last year, Arcos Dorados accounted for 5.1 percent of the fast-food chain’s global sales.

“A lot of investors have the proverbial Happy Meal in their portfolio today if they have Arcos Dorados,” said Matt McCormick, a money manager for Cincinnati-based Bahl & Gaynor Inc., which oversees $3.6 billion and owns McDonald’s shares. “McDonald’s is a ubiquitous brand that is prominent and is a proven entity, whether it be the distribution model, the profitability, or the product quality.”

The restaurant operator rose $4.20 to $21.20 at 4 p.m. in New York Stock Exchange composite trading. McDonald’s stock increased 18 cents to $77.07.

Store Renovation

Proceeds from the sale will go to “new buildings and the renovation of existing stores,” Arcos Chairman and Chief Executive Officer Woods Staton said on a webcast today. “That’s the best use of that capital.”

Staton, who was a regional head at McDonald’s before he and other investors took over the Latin America division four years ago, will control 39 percent of the company and have 76 percent of total voting interest.

There have been 45 U.S. IPOs this year, excluding investment funds and acquisition companies, according to data compiled by Bloomberg. The largest was HCA Holdings Inc., a Nashville, Tennessee-based hospital chain, which raised $3.79 billion in March. That offering was later expanded to $4.35 billion after underwriters exercised an overallotment option to buy additional shares, according to data compiled by Bloomberg.

IPO Calendar

Seven companies are attempting to raise at least $1.89 billion in U.S. initial offerings this week, the busiest for new-stock sales in more than two months.

Zipcar Inc., the car-sharing company that rents vehicles by the hour, raised $174.3 million in an IPO yesterday, 31 percent more than it sought. The company, based in Cambridge, Massachusetts, sold 9.7 million shares at $18 each, according to Bloomberg data. Zipcar gained $10, or 56 percent, to $28 at 4 p.m. in its first day of trading on the Nasdaq Stock Market.

“There’s a willingness by investors to participate in anything that looks exciting,” said Connor Wilson, an analyst at Santa Fe, New Mexico-based Thornburg Investment Management, which oversees about $78 billion, including Arcos and McDonald’s shares. There’s more of an “appetite” for IPOs than last year, he said.

Several private-equity firms sold Arcos Dorados’s shares yesterday, including Gavea Investimentos Ltda., the company founded by former Brazil central bank President Arminio Fraga.

Brazil’s expanding economy, Latin America’s biggest, has helped Arcos Dorados build its business there. Revenue at McDonald’s restaurants in Brazil surged 33 percent last year. McDonald’s, based in Oak Brook, Illinois, recorded revenue growth of 5.8 percent during the same period.

Arcos paid McDonald’s $141 million in 2010, excluding royalties paid on behalf of franchisees, according to a company filing. McDonald’s, the world’s largest restaurant chain, operates 80 percent of its stores through franchise agreements.

McDonald’s had 32,737 locations in 117 countries as of Dec. 31, according to a company filing.

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