Prominent investor sells McDonald's stake
Activist investor William Ackman sold his stake in McDonald's Corp., the world's largest restaurant company, after shares almost doubled since his first investment in 2005.
McDonald's isn't buying back shares, cutting costs or opening restaurants fast enough for Ackman's Pershing Square Capital Management LP to "continue to achieve extraordinarily high rates of return," the firm said in a Nov. 21 letter to investors.
Ackman, 41, confirmed in an interview Wednesday he sold the McDonald's shares.
Ackman demanded McDonald's sell restaurants, accelerate share buybacks and provide additional financial information when he bought options and stock in the company. He was McDonald's 10th-largest investor with 18.8 million shares through September, acquiring a 1.6 percent stake to exert greater influence over management, he said in the letter.
McDonald's doesn't comment on buying and selling by individual investors, said Walt Riker, a spokesman for the Oak Brook-based company. Ackman declined to comment further.
The restaurant chain fell 52 cents to $59.51 Wednesday in New York Stock Exchange trading. The shares have climbed 78 percent since Sept. 15, 2005, the day before reports that Ackman had acquired a stake in the company.
During the more than two years he held the stock, Ackman delved into McDonald's operations to find ways to boost returns. He spent a few hours one day in December 2005 working in a McDonald's restaurant in south Florida. He relayed the experience to investors a month later as he tried to rally stockholders to force McDonald's to accelerate share buybacks and asset sales.
"I'll give him credit for having spent the time to try to understand our franchisees, more than most other investors," Matthew Paull, who's retiring this month as McDonald's chief financial officer, said in an interview May 24.
Pershing manages $6 billion, including shares of Target Corp., the second-largest U.S. discount retailer; bookstore chain Borders Group Inc.; and Sears Holdings Corp., the biggest U.S. department store chain.
Ackman wrote Nov. 21 that McDonald's "still has plenty of excess capital which could be returned to shareholders or potentially used to accelerate growth."
In September, McDonald's increased its annual dividend by 50 percent as part of a plan to return as much as $17 billion to investors through 2009. The increase expanded the commitment the company made a year earlier to spend at least $10 billion on dividends and share buybacks through 2008.
Ackman "didn't do any harm and he may have had a positive influence," said Janna Sampson, who helps manage $1.2 billion, including 208,000 McDonald's shares, at OakBrook Investments LLC in Lisle. "I'm not surprised he's getting out. We didn't see him as a long-term investor."
McDonald's has changed its business model since Ackman's investment, Pershing said in the letter, which was sent to its investors. Pershing didn't provide a specific return on the McDonald's stake, other than to say it "nearly doubled."
Ackman's public pressure on McDonald's spurred Paull to talk to other investors about the activist's suggestions, the finance chief said in May.
The company moved "a little faster" to divest assets after Ackman urged the sale of company-owned restaurants to franchisees who pay royalties to McDonald's, Paull said.
Paull said he met with Ackman about once a quarter, alternating between Ackman's Manhattan office and McDonald's Oak Brook headquarters.
Operating fewer restaurants, Ackman said in January 2006, would allow the company to spend more of its cash on stock buybacks and dividends.
In the third quarter, McDonald's completed the sale of almost 1,600 Latin and Carribean outlets, generating $700 million for dividends and share buybacks. McDonald's had more than 31,000 restaurants in 118 countries as of Sept. 30.
Over the next three years, the restaurant operator plans to sell as many as 1,500 outlets to independent operators, Chief Operating Officer Ralph Alvarez told analysts Nov. 13.
McDonald's, which has increased comparable-store sales for more than four years, will continue adding new foods and beverages and renovating restaurants to drive growth, spokesman Riker said Wednesday.
At Ackman's urging, Paull said, McDonald's disclosed additional information about the profitability of its company-owned restaurants, starting with its annual U.S. Securities and Exchange Commission filing in 2006.
Ackman pushed for the disclosure to bolster his view that McDonald's should accelerate the sale of company-owned stores to franchisees that could operate them more profitably.