McDonald's Corp., the world's largest fast-food company, said Wednesday it intends to spin off a minority stake in its Chipotle Mexican Grill brand in order to fuel its growth and create value for its shareholders.
The company told analysts at the start of a two-day meeting at its headquarters that it plans to file for an initial public offering involving Chipotle by the end of October and expects to launch the IPO in the first quarter of 2006.
The announcement comes eight months after it first raised the possibility of spinning off the growing 400-restaurant operation and plowing much of the proceeds into its namesake-brand restaurants. It also follows a similar move by rival Wendy's International Inc., which said in July that it plans to sell a portion of its Tim Hortons doughnut and coffee chain.
Unlike with Wendy's stock, which rose 12 percent the day of its Tim Hortons announcement, Wall Street did not embrace McDonald's move. Shares fell $1.20, or 3.7 percent, to close at $31.42 on the New York Stock Exchange, down from last week's 52-week high of $35.03.
CEO Jim Skinner, who reaffirmed the company's annual growth targets of 3 percent to 5 percent in sales and 6 percent to 7 percent in operating income, attributed the Chipotle move to a need to devote the burger chain's full attention and resources to McDonald's restaurants.
"We believe this action will highlight Chipotle's performance and unique characteristics which are currently overshadowed by the larger McDonald's global business," he said. "In addition, it will optimize Chipotle's potential and create value for McDonald's shareholders." McDonald's also said its board raised the company's annual dividend by 22 percent, boosting the total dividend payout to more than $825 million (Ђ675 million). The 2005 increase raises the annual cash payout to 67 cents per share, nearly tripling the dividend since 2002.
The dividend is payable Dec. 1 to shareholders of record Nov. 15. McDonald's said the company will invest $1.8 billion (Ђ1.5 billion) in capital expenditures in 2006 to open about 850 restaurants and broaden "re-imaging" efforts internationally.
Chief Financial Officer Matthew Paull said the company expects to return $5 billion to $6 billion to shareholders via dividends and share repurchase over the next two years, AP reports.