Will Starbucks prosper or suffer under a hedge fund’s influence?
Starbucks’ management and board of directors may need to stock up on headache remedies. Bill Ackman and his hedge fund, Pershing Square Capital, has accumulated 15.2 million shares (about 1.1 percent of the total) in the coffee giant with plans to double that stake over the next three years.
For those not familiar, it was Mr. Ackman who was behind the decision to push aside Mike Ullman as CEO of J.C. Penney and replace him with Ron Johnson from Apple. Mr. Ackman, it was reported at the time, was actively involved in recruiting Mr. Johnson. More than five years after the board fired Mr. Johnson, many continue to blame him for many of the problems faced by the chain today.
Mr. Ackman has been in the middle of scrums with the board of directors at Penney, ADP, Herbalife, Procter & Gamble and other companies over the years. So, the question today is whether the same is likely to happen at Starbucks?
Pershing Square Capital and Mr. Ackman have had a tough go of it in recent years. CNBC reports that the hedge fund has seen investors leave due to poor returns. The fund has lost more than half its assets since reaching a high of $20 billion in 2015.
Starbucks, for its part, has been seeking ways to reinvigorate sales in the U.S. In July, Starbucks reported domestic same-store sales growth of one percent for its fiscal third quarter while lowering its outlook for the year. The chain has scaled back plans to open new locations while announcing it expected to shutter around 150 shops, well above the 50 or so it closes in a typical year.
Mr. Ackman doesn’t appear as though he plans on causing a ruckus at Starbucks. He has said he supports moves being taken by management to address some of the challenges it faces and that he believes Starbucks’ share price could double over the next three years.
On the positive side for Starbucks and Mr. Ackman, shares in the coffee giant jumped five percent on the news of Pershing Square’s investment plans.
DISCUSSION QUESTIONS: Should management and the board of directors at Starbucks be concerned about Bill Ackman’s plans to acquire shares in the company? Have activist investors been a net positive or negative for the long-term prospects of the companies in which they invest?