Risk & Compliance

Hedge Fund Pressures McDonald’s

Investors urge McDonald's to spin off restaurants, but the fast-food giant refuses.
Stephen TaubNovember 15, 2005

McDonald’s is the most recent target of outside investor attempts to shake up management.

William Ackman, managing partner at Pershing Square Capital Management, has called for the fast-food giant to spin off 65 percent of its 8,000 company-owned restaurants and borrow $14.7 billion against its real estate — a move that Ackman thinks could raise McDonald’s share price by 50 percent, said the Associated Press.

At the Value Investing Congress in New York on Tuesday, Ackman acknowledged that most of Pershing Square’s 4.9 percent stake in McDonald’s is in options, not shares, noted the wire service. “This is not a case at all where we think McDonald’s is doing a bad job,” said Ackman in his speech, according to the report. “Quite the opposite — we like management.”

Recently, Vornado Realty Trust purchased a 1.2 percent stake in McDonald’s, which came on the heels of market speculation about whether the fast-food chain would convert the land underneath restaurants into a real estate investment trust. Jim Skinner, McDonald’s chief executive officer, has already rejected the suggested restructuring and the idea of a REIT.

The Pershing Square push on McDonald’s is just one of many recent battles in which corporations are squaring off with outside investors.

On Monday, Boston-based hedge fund K Capital Partners fired off an open letter to the board of directors of OfficeMax, calling on it to present a turnaround plan. The fund, which owns 8.6 percent of OfficeMax, also wants the company to declassify the board within two years, and form a committee of independent board members.

Also on Monday, officials at media giant Knight Ridder Inc. agreed to put the company up for sale after feeling enormous pressure from shareholders led by money manager Private Capital Management Inc., a subsidiary of Legg Mason. Harris Associates also urged the company to find a buyer.

Last week, Sovereign Bancorp rejected a demand by activist hedge fund Relational Investors LLC to inspect certain records of the company.