By George Anderson
William Ackman thinks McDonald's Corp. is "a very shareholder-friendly company," and while he thinks its management is doing a good job, he has a few suggestions on how it could perform better for its shareholders.
McDonald's CFO Matthew Paull said the company remains "open to ideas" but, following Mr. Ackman's recommendations "would not create significant value for McDonald's shareholders" and would "pose serious strategic and financial risks" to the business.
Yesterday, Mr. Ackman, founder and managing partner of the hedge fund Pershing Square Capital Management, presented a proposal calling for McDonald's to sell roughly two-thirds of its company-owned restaurants and borrow $14.7 billion against its real estate assets to buy back shares. Doing this, said Mr. Ackman, would help raise McDonald's share price by up to 50 percent within six months. Pershing Square Capital Management holds a 4.9 percent stake in McDonald's.
Mr. Ackman called the view of McDonald's as a restaurant company that has large real estate holdings a "fundamental misperception." The truth, he said, is nearly 90 percent of McDonald's earnings, not including rent and some other fees, come from its real estate.
Shedding company-owned restaurants would get McDonald's out of a low-margin and capital-intensive business and allow it to focus on its franchisee operations, he said.
Moderator's Comment: Does running company-owned restaurants make McDonald's a greater asset to its franchisees or would the needs of franchisees be better served if it were to follow William Ackman's recommendations? - George Anderson - Moderator