Why CKE postponed its IPO
Concerns on Wall Street over restaurant industry health, recently fueled by a sales miss from McDonald’s, may be to blame for CKE Restaurants' decision to postpone its initial public offering, according to various sources.
The planned IPO that was set to begin trading on Friday was called off late Thursday “due to market conditions,” CKE said.
The Carpinteria, Calif.-based company operates or franchises 3,263 restaurants under the Carl’s Jr. and Hardee’s brand names. The company had hoped to raise more than $200 million with an offering of 13.3 million shares of common stock priced between $14 and $16 per share.
A report on Thursday by the International Franchising Review, an online publication of Thomson Reuters Capital Markets Publishing, said CKE owner Apollo Management turned down an offer presented by the underwriting banks because it was too low.
According to the report, which did not name sources, the offer by joint underwriters Morgan Stanley, Citigroup and Goldman Sachs was believed to be $10 per share. Earlier, the banks had communicated investor interest in the $10 to $11 range.
Two days before CKE’s IPO was scheduled, Outback Steakhouse parent Bloomin’ Brands Inc. went to market with stock priced at $11 — well below the previous target of $13 to $15 per share. The size of the offering was also reduced to 16 million from the 21 million initially stated, and, though the stock price climbed through the week, some saw the situation as an indicator that investor interest in the restaurant space was cooling.
“For it to be priced below [the target range] and for it to be undersubscribed, that tells you a lot about that market,” said Conrad Lyon, securities analyst with B. Riley & Co. in Los Angeles. “The appetite probably just wasn’t there.”
Observers disagree, however, about the “market conditions” that might be scaring investors off.
On the same day as Bloomin’ Brands’ IPO, McDonald’s reported that its global same-store sales in July were not positive for the first time in years. The quick-service leader reported that same-store sales fell 0.1 percent among U.S. locations, 0.6 percent in Europe and 1.5 percent in Asia Pacific, Middle East and Africa.
Analysts blamed weakness in the global economy but also stiffer competition from competitors like Wendy’s, Burger King and Taco Bell, all of which have shown improving results.
Concerns about beef prices next year may also have been a factor in the postponement of CKE, according to International Franchising Review.