July 25, 2011 / 8:35 PM / 8 years ago

Dunkin' Brands may raise more than $400 million in IPO

LOS ANGELES (Reuters) - Dunkin’ Brands Group this week plans to raise up to $400.5 million in an initial public offering that would help fuel the U.S. expansion of its Dunkin’ Donuts coffee brand.

The Canton, Massachusetts-based company wants to double the number of Dunkin’ Donuts outlets in the United States over the coming 20 years.

Dunkin’ Donuts has an extremely loyal following in the United States, where it touts itself as a seller of coffee for the working class. The chain lags bigger rival Starbucks Corp (SBUX.O) when it comes to U.S. store numbers, but has successfully challenged its bigger rival in the grocery aisle.

Dunkin’ Brands, which also owns the Baskin-Robbins ice cream store brand, plans to sell 22.25 million IPO shares at $16 to $18 per share, according to a regulatory filing.

Pricing will be set on Tuesday evening and shares will begin trading on Wednesday, syndicate desks involved in the deal told Reuters.

Private equity firms Bain Capital, Carlyle Group CYL.UL Group and Thomas H. Lee Partners bought Dunkin’ Brands from global spirits company Pernod Ricard SA (PERP.PA) for $2.4 billion in 2006 and took it private.

If the IPO price lands at the range’s midpoint of $17 per share, Dunkin’ Brands’ market value would be about $2.15 billion.

Based on those figures, the company’s shares would trade at 3.7 times 2010 sales, a richer valuation than Starbucks, which at the close of trade on Monday traded at 2.8 times calendar 2010 sales.

“It’s a fairly high valuation, but I could make a case for buying the stock,” said Michael Yoshikami, chief executive and founder of YCMNET Advisors in Walnut Creek, California.

While Starbucks has built a global following selling fancy coffee drinks to relatively upscale consumers, Dunkin’ Donuts takes pride in its blue-collar clientele.

“Low-cost food products are going to do well in a more difficult economy,” said Yoshikami, who added that he prefers McDonald’s Corp (MCD.N) — which has been expanding coffee sales through its McCafe program — over Dunkin’ Donuts.

Dunkin’ Donuts has a devoted following in the eastern United States, where almost 6,700 of its roughly 6,800 domestic outlets are located. The chain also has more than 3,000 international stores.

Yoshikami said Dunkin’ Donuts has huge potential, particularly on the East Coast.

The chain plans to focus on markets east of the Mississippi River, including Philadelphia, Chicago and South Florida. Longer term, it sees the western United States as a significant growth opportunity. Dunkin’ Donuts has about 100 stores in the region now.

Starbucks already has blanketed the United States with cafes. More than 11,000 of its 17,000 global cafes are located in the United States. As a result, its expansion is focused mainly on overseas markets like China.

DUNKIN’ DONUTS VS. STARBUCKS

The world’s biggest coffee chain stumbled when the U.S. slipped into recession. When Starbucks was busy restructuring its global business, Dunkin’ Donuts debuted its bagged coffee in U.S. supermarkets and drained market share from Starbucks.

The smaller company also had a successful advertising campaign featuring the slogan “America Runs on Dunkin’.”

Robert Passikoff, president and founder of Brand Keys Inc, a consumer and brand loyalty consulting firm, called that campaign a coup for Dunkin’ Donuts, which has ranked No. 1 for customer loyalty and engagement in coffee over the past five years.

Starbucks ranks second, McDonald’s is third and Canadian chain Tim Hortons Inc THI.TO is fourth, Passikoff said.

During 2010, Dunkin’ Brands’ revenue was $577.1 million and its net income was $26.9 million.

Baskin-Robbins is the company’s more international brand, with just over 2,500 of its nearly 6,500 worldwide stores in the United States.

Bain Capital, Carlyle Group Group and Thomas H. Lee Partners are selling shares in the IPO, which would reduce their overall stake from about 32 percent to 26 percent.

Proceeds from the offering will be used to repay debt and fund operations.

Dunkin’ Brands shares will trade on the Nasdaq under the ticker “DNKN”.

Editing by Robert MacMillan

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