Domino's Pizza misses target, to sell at $14 today on NYSE

July 13, 2004

LOUISVILLE, Ky. — When David Brandon, chairman and CEO of Domino's Pizza, rings the opening bell at the New York Stock Exchange on July 13, bidding for the company's stock will begin at $14, a bit short of the chain's desired $15 to $17 target.

According to a news release and multiple press reports, institutional investors scooped up 24.2 million shares of Domino's (to be traded under the symbol DPZ) at a market value of roughly $339 million. Of that amount the company will receive $131.2 million, and insiders such as the company's owner, Bain Capital, founder Tom Monaghan and others, will divide nearly $208 million.

The lead underwriters, J.P. Morgan Securities Inc. and Citigroup Global Markets Inc., have the option to purchase about 3.6 million additional shares from certain selling stockholders to cover any over-allotments.

According to a filing with the Securities and Exchange Commission, Domino's Pizza, Inc. will use proceeds from the sale to reduce some of its $950 million-plus debt load.

Though stock analysts view Domino's as a very stable investment, stiff competition in the pizza industry combined with the company's debt may have led to the stock's $14 price. Still, it appears the lower price took some by surprise.

David Sowerby, senior portfolio manager with Loomis Sayles & Co. in Detroit, told the Detroit News that demand for Domino's shares was very strong during its pre-IPO commitment. "The business formula at Domino's is very time-proven and the company has been a major institution for a long, long time. Investors know they have a very capable, well thought of management team," he added.

A report on said the pizza chain's strong cash flow and international growth prospects make it an attractive buy, but it added that "extensive selling by investors and executives on the IPO, large dividends paid to insiders in the June 2003 recapitalization and excessive cash compensation packages granted to top management are turn-offs."

A Reuters report said that this week's busy IPO schedule could have pulled some value from Domino's shares, and Eugene Bosart III, president of Detroit-based McDonald Investments, told the Detroit News that the "low-carb scenario" has made him hesitant to invest in a foodservice company whose core product is carb-centric. "I'd rather just sit back and watch it. Domino's is a relatively one-product company. That makes me a little nervous."

Read related Domino's Pizza articles by clicking here.

Topics: Domino's Pizza

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