Weekend Feature: McDonald's Activist Speculation

 We sent this out over the weekend to newsletter subscribers...

Again, too much to get to during the week. This weekend’s feature is just a quick hit about 13Fs. We’re busy combing through the cornucopia of hedge fund filings, working on a newsletter - rolling it out for our Activist Strategy later this week.

There’s also our Top Weekly Ideas. The first edition went out last week and the second will go out today. We’re offering the first two editions for free as we work out the kinks. Sign up for those 2 weeks here.  

Here’s our key thought for the week and a little bit extra.

Weekend Feature: McDonald’s Activist Speculation Rages On

Much of the media and many retail investors like the idea of an activist targeting McDonald’s. And with the recent out of 13Fs being released, there’s plenty to be said about who will target McDonald’s.

Jana Partners is once again the topic of conversation. They owned around 850k shares last year and sold that off. Now they’ve taken another new 125k share stake.  

Keith Meister at Corvex Management is in on the action, taking a 205k stake. Meister knows a thing or two about real estate and unlocking value there. Recall that Meister was also the Carl Icahn's right-hand man back in the day.

Then there’s Larry Robbins' Glenview Capital, which  added a new position in McDonald's. His fund bought 2.9 million shares last quarter. Robbins has wrote about McDonald’s in the past, including in his fourth quarter letter. Specifically, "Fundamentally, McDonald’s has a number of characteristics that we look for in good businesses. Approximately 75% of EBITDA is driven by royalties and rent, which is a secure, stable earnings stream free of operating leverage. Food, in general, is a defensive end market, and McDonald’s positioning at the value end of the spectrum provides further insulation from material cyclicality as evidenced by positive same-store sales in the U.S. and positive consolidated EPS growth in every year throughout the last recession."

Highfields Capital upped its stake by well more than 1,000 percent to 9.8 million shares. Coupled with its call options and its total stake is worth upwards of $1.37 billion.

All this hedge fund interest comes as McDonald's is taking a beating from Chipotle, as well as the likes of Shake Shack. The company is working to “better” service, pare its menu, sell off 3,500 stores by 2018, etc.

But the real activist value lies in getting the company to spin its real estate off into a REIT. Of which, there are various complexities. The likelihood of this happening is nil at this point, but the media loves to speculate.

Notable new activist campaigns from the week -

  • Elliott Associates goes active on CDK

  • Joe Stilwell is now an activist at Alamogordo Financial Corp

  • Armistice Capital is an activist at Spectrum Pharmaceuticals Inc.

  • Bulldog Investors is active at Hill International

  • Stone House Capital is an activist at AM Castle

The rockstar posts of the week on Activist Stocks were -

  1. Peltz’s DuPont Downfall: Passive pansies and the retail ‘sheep’ investor, May 8

  2. Trian Partners' Full Page Ad In WSJ On DuPont, May 11

  3. Letter: Armistice Capital Active On Spectrum Pharmaceuticals, May 12

  4. Lawndale Capital Taking On Willbros Group, May 13

  5. Engaged Capital Gets A Win At Rovi, May 13