Chipotle's Spicy IPO

It seems I've come late to the Chipotle IPO story.

Already, my Foolish colleagues W.D. Crotty, Nathan Parmelee, and Rick Munarriz have cooked up articles on the McDonald's (NYSE: MCD  ) scion's prospective IPO, covering everything from the chain's breakneck pace of growth to the potential for copycat IPOs from Wendy's (NYSE: WEN  ) Baja Fresh and CKE Restaurants' (NYSE: CKR  ) La Salsa.

If you haven't read these stories yet, take a moment and get up to speed, because I won't be talking about these aspects of the IPO at all:

Ready? Then here's what we'll look at today: the shares themselves. On Friday, after consulting with underwriters Morgan Stanley (NYSE: MWD  ) and SG Cowen, Chipotle went public with its asking price. On a date still to be announced, Chipotle will be wanting $15.50 to $17.50 per share -- about the cost of a meal for two at the Mexican eatery. Now let's take a look at the company's latest S-1 filing and decide whether our money is better spent on one share of Chipotle or two burritos to go.

According to Chipotle's S-1, the IPO will float 6.1 million shares, issued by the company itself and aimed at raising capital to, among other things, pay off the balance remaining on what was originally a $30 million revolving line of credit with McDonald's. McDonald's will sell another 1.8 million shares, and the underwriters may stake claim to 1.8 million more, for a total of 9.7 million shares. But those are only the class A shares.

There's more than one class?
That's right, folks. There's a class B as well. But these aren't just any class B shares; these 24.6 million class B shares carry the right to vote 10 times each at shareholder meetings.

If you value the class B's at the same price as the class A shares, then 34.3 million common shares outstanding could give Chipotle a market cap of as much as $600 million if it prices at the top of its range. At that valuation, the company would sport a price-to-sales ratio of just 1.0 -- far below the 2.2 ratio that McDonald's shares fetch, or Taco Bell parent Yum! Brands' (NYSE: YUM  ) 1.5, but pricier than Mexican Restaurants' (Nasdaq: CASA  ) 0.5 ratio, or On the Border parent Brinkers' (NYSE: EAT  ) 0.8.

Mind you, none of Chipotle's numbers are final yet. The price might be moved higher or lower before the IPO actually occurs and will certainly change thereafter. If the shares do price in this range, however, they don't look unreasonably priced per se. On the other hand, this Fool does find the notion of being asked to pay a fair price for less-than-fair voting rights in the company a bit hard to swallow.

Fools, now is the time to open your hearts and wallets to worthy causes! Please support our five Foolish charities atwww.foolanthropy.com.

Fool contributorRich Smithhas no position in any of the companies mentioned in this article.


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