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Bill Ackman, founder of Pershing Square Capital Management, L.P., a manager of hedge funds that are among the largest shareholders of McDonald’s, detailed Pershing’s proposal for the company to spin off 65 percent of its interest in company-owned restaurants in an initial public offering. The proposal also calls for McDonald’s borrow $14.7 billion against its real estate.
Ackman claims these changes would create significant value for shareholders, create investor transparency, and enhance management focus and incentives, as well as improve operational and financial metrics at every level.
Pershing originally presented its proposal to McDonald’s on September 22 but was rejected by the company after a follow-up meeting at the end of October.
In the web cast, Ackman said the company has taken all of Pershing’s suggestions seriously. “McDonald’s spent time studying our proposal…and gave us very careful feedback,” he said.
He stressed that the proposal does not insinuate that McDonald’s is having problems but rather reflects Pershing’s view that it is an “extremely undervalued company.”
For its part, McDonald's released the following statement credited to CFO Matthew Paull:
"In our view, the concept outlined at today's Value Investing Congress would not create significant value for McDonald's shareholders. McDonald's and two separate outside advisors [sic] have carefully evaluated the ideas presented and concluded that they would pose serious strategic and financial risks to McDonald's and our overall system.
"The proposal is an exercise in financial engineering and does not take into account McDonald's unique business model. While we remain open to ideas, we simply will not jeopardize the long-term health of our company, nor our relationships with customers, franchisees, and suppliers for such a financial engineering exercise.
"We remain focused on our 'Plan to Win,' which is building value for our shareholders and is successfully aligning the Company and our franchisees to better serve customers."