September 16, 2005
Will Ronald McDonald Put on His Smiley Face for the Hedge Funds...
In a move that sent the stock price up over $35 for the first time in four and a half years, Bloomberg has reported that Pershing Square Capital Management LP, the hedge fund that urged Wendy's International Inc. (NYSE: WEN) to sell assets, acquired 4.9% of McDonald's. (NYSE: MCD).
McDonald's stated that it did not know whether Pershing has bought a stake in the company. "Based on McDonald's business performance, shareholders have demonstrated continued confidence in McDonald's management and strategic direction," said spokeswoman Anna Rozenich. "Beyond that, we have no specific information on the extent or form of Pershing Square Capital's position in McDonald's."
Last summer, Pershing went into Wendy's and urged the board to sell off its Tim Horton's chain, which Wendy's is currently doing. (I discussed this matter here). Analysts and others believe that Pershing might be doing the same with McDonald's. In fact, within the past couple weeks, Jim Cramer in his Mad Money show did a spotlight on McDonald's and the value of its assets. Specifically, McDonald's has a majority stake in restaurant chain Chipolte and owns restaurant chain Boston Market. Analysts believe that selling these two chains could bring in approximately $2B. Others have pointed to unlocking the value of McDonald's real estate assets, by selling the real estate McDonald's owns to its franchisees. The value of real estate has been seen in the sell-off of KMart's (NASDAQ: SHLD) real estate to companies like Home Depot (NYSE: HD). Analysts believe this could bring in another $2B. To follow through this line of thought, McDonald's could then take these revenues and pay down its debt, and announce a major stock repurchase or dividend increase. Following the Wendy's example, McDonald's executives will then exercise their compensatory options and sell some McDonalds's stock, cashing in on the stock's price rise.
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