Business Law Prof Blog

Reflection on the Chipotle IPO...

Posted by Jason R. Job

Yesterday, Chipotle Mexican Grill (NYSE: CMG) had its initial public offering, trading up 100% to closing at $44 a share.  Initially, CMG had stated that it's offering of approximate 7.9 million shares would price between $15.50 and $17.50 a share.  On Monday of this week, CMG increased its anticipated offering price to between $18 and $20 a share.  (AP article on increase can be found here).  On Wednesday night, CMG was offered at $22 a share through its underwriters Morgan Stanley and SG Cowen & Co.  So when CMG opened for trading at $45 a share on Thursday, I was quite surprised.

When I was at the Moritz College of Law at the Ohio State University, I took a class on small business ventures, and we had a few heated discussions on the pricing of offers and who wins and who loses on these deals. 

Clearly, McDonald's is a winner because it still owns a 66% interest in Chipotle, but did McDonald's lose some money when the shares were priced at $22 instead of say $40?  What about Steve Ells, the founder and CEO of CMG, he sold some shares in the IPO and still owns some, but did he lose out on some of the gains?  Maybe Morgan Stanley and SG Cowen are the winners, they underwrote the shares offering $22 a share and these shares began trading at $45.  Not a bad 100% gain at the open of trading.  People might argue that Morgan Stanley and SG Cowen were placing a lot of money behind the deal, requiring them to outlay over $170M to fund the IPO, but when the stock began trading at $45, over 100% more than the offering price, Morgan Stanley and SG Cowen looked like geniuses.  Or maybe the market is just being stupid and purchasing on the IPO based upon the hype that CMG has received over the past few weeks.  If this is the case, maybe Morgan Stanley, SG Cowen, McDonald's, and others believe that CMG is only worth $22 a share, and for some outlandish reason, the public is paying $44 a share for a company in which McDonald's still owns majority control in both voting power and capital.

Granted, as a shareholder of MCD, I just hope that I get a piece of the action at some point through a stock dividend.  But until then, I'm going to still frequent my local Chipotle and enjoy a burrito with carnitas, rice, corn salsa, tomatoes, and a bit of cheese.

Business Trends

Daniel Altman writes in the Sunday NYTimes "the economy is coming to rely more on the highest-value services and sophisticated manufacturing. We are become a nation of advisers, fixers, entertainers and high-tech engineers, with a lucrative sideline in treating our own illness."  He notes that durable and non durable good manufacturing in the Unites States is in dramatic decline.  He omits the evidence that the high educational needs of the sophisticated market are separating an educated elite from others in the country.  We are going soft and we are divided.