Domino's Pizza Shares Fall in Trading Debut

DETROIT – Domino's Pizza Inc.'s (DPZ) stock stumbled in its trading debut Tuesday, getting no rise out of investors despite an initial offering price that was below expectations.

The nation's No. 2 pizza chain priced 24.1 million shares in its initial public offering of stock at $14 each late Monday, raising about $337 million, the debt-laden pizza chain said in an earlier filing with the Securities and Exchange Commission (search).

That was lower than the $15 to $17 a share the company had hoped to get for the shares. The stock began trading on the New York Stock Exchange (search) under the symbol DPZ and fell 25 cents to $13.75 per share with 9.5 million shares having changed hands in morning trading.

The IPO comes amid a recent rebound in the $32 billion-a-year U.S. pizza industry, said Steve Coomes, senior editor of pizzamarketplace.com (search), an online trade publication.

Investors, however, probably won't find themselves rolling in dough, said David Menlow, president of IPOfinancial.com, an independent research firm in Milburn, N.J.

"Domino's Pizza is a name that people will just be able to put their head on the pillow at night and say, 'I'm OK with this stock,'" Menlow said. "As far as growth that is going to turn into a good investment, this will probably be along the lines of a utility stock that just moves very slowly on the upside."

Ann Arbor, Mich.-based Domino's said it would use its proceeds to pay down $125.5 million of its about $948 million in long-term debt; $10 million to its majority owner, Bain Capital Partners VI LLC (search) of Boston; and $1.6 million in bonuses and stock options to two senior executives.

The selling stockholders include Bain Capital, which currently owns 65 percent of Domino's common shares; JPMP Capital LLC of New York, 7.9 percent; and founder Tom Monaghan, whose 3.5 million shares represent a 6.3-percent stake.

The SEC filing listed J.P. Morgan Securities Inc., Citigroup Global Markets Inc., Bear, Stearns & Co. Inc., Credit Suisse First Boston LLC and Lehman Brothers Inc. as underwriters for the offering.

The underwriters have an option to buy up to 3.61 million additional shares from certain selling stockholders to cover any over-allotments, Domino's said.

Domino's in April announced plans to trade its stock publicly for the first time in the company's 44-year history.

There had been speculation that Domino's would go public since 1998, when Bain bought a 93-percent stake in the company from Monaghan for $1 billion. Bain and Monaghan would own 43.8 percent and 0.8 percent, respectively, after the IPO, according to the SEC filing.

Domino's reported net income of $39 million on sales of $1.33 billion in 2003, a 36 percent decline from net income of $60.5 million on sales of $1.28 billion in 2002. First-quarter 2004 net income was $18.4 million, nearly half of Domino's total for all of 2003.

Domino's had 7,473 franchised and company-owned stores as of March 31, up from 7,230 stores at the end of 2002. There were 4,920 domestic stores and 2,553 international stores.

The company directly employs 13,300 people and, with its franchisees, has a total worldwide work force of 145,000.

Pizza Hut (search), the nation's biggest pizza chain, controls an estimated 19.5 percent of the pizza market, according to Technomic Inc., a Chicago-based restaurant industry consulting company. Pizza Hut is followed by Domino's, at 11.6 percent, and Papa John's (search), at 6.6 percent. Independents control about 48 percent of the pizza market.

Monaghan, 67, was raised in an orphanage and borrowed $900 to open his first store with his brother in Ypsilanti, Mich., in 1960.

A former owner of the Detroit Tigers (search), he started the Ave Maria School of Law in Ypsilanti. He also founded Ave Maria University in Florida. The Roman Catholic university has outlined plans to build a prairie-style campus surrounding a gleaming, towering church — expected to be among the nation's largest.