Wednesday, December 5, 2007

McDonald's Beats McHedge Fund Investor

It's going to be a long time before another shareholder activist takes on Ronald McDonald. That clown is tougher than he looks.
Today, William Ackman, the aggressive head of Pershing Square Capital Management, confirmed to Bloomberg Business News that he's sold off his estimated 19 million shares, or a 1.6 percent ownership stake in McDonalds Corp.
McDonald's brass is probably not very sorry to see him go. Still Ackman, who bought into McDonald's about two years ago with hopes of shaking up the place, had little choice but to take the money and run. The fact is: McDonald's is humming along so well these days that there was little shareholder appetite for an Ackman-lead revolt against management or the company's business practices.
Ackman did some good things during his time. He prodded the Oak Brook-based company to accelerate its sale of company-owned stores to franchisees, who pay fees to the parent company. He also tweaked management into dipping into McDonald's ample cash reserves and boosting the dividend by 50 percent.
For his efforts, Ackman reportedly doubled his McDonald's money.
Beyond that, however, Ackman was pushed to the sidelines. Nothing beats a successful company and McDonald's sales and earnings are growing at an impressive clip, while its share price has climbed 78 percent since late 2005.
With those kind of results, Ackman couldn't rally fellow investors to press for more radical changes. Why would they bother?
Whether you like Big Macs or not, there's little doubt that CEO Jim Skinner's team has McDonald's operating at full tilt--especially compared to lackluster competitors like Burger King, Taco Bell and Kentucky Fried Chicken. (Internet business news site Marketwatch just named Skinner CEO of the year)
And even though McDonald's stock took a little hit today, dipping to about $59 per share, Wall Street wags think it's at least a $65 stock and climbing.
Plus, McDonald's isn't standing still under those Golden Arches.
The fast food giant is waging a successful coffee war against Starbucks, while expanding its offerings in the highly-lucrative breakfast segment (McSkillet Burrito anyone?).
Are there problems that can trip up McDonald's? You bet.
There's a price war looming with Burger King. There's continued concern about food safety, and tainted beef, in the U.S. and abroad. There's well-justified fears over child obesity that could potentially make McDonald's a social pariah.
But one problem McDonald's won't have to fret about for awhile is dealing with an unhappy shareholder activist like Ackman.
Armed with those huge red boots, Ronald just kicked him out the McDoor.


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