It seems that everyone has an opinion about how to improve operations at McDonald’s Corp. That reportedly now includes a hedge fund that recently took a small position in the company.
According to the Wall Street Journal, Glenview Capital Management LLC has built a small position in the Oak Brook, Ill.-based quick-service operator and discussed ways the company could improve its stock price at an investor meeting Thursday.
Those suggestions from Glenview’s Larry Robbins include separating its real estate into a publicly traded investment trust or franchising more of its restaurants, according to the Journal.
Real estate is a frequent target of activist investors because restaurants generally get lower returns from owning real estate than they do from selling hamburgers or, in particular, selling franchises.
It’s a common tactic for activists to push real estate spinoffs. Darden Restaurants Inc. has made a decision on its real estate holdings a priority, among many potential changes at the company since activist Starboard Value LP won all 12 seats on the company’s board last fall. During its activist campaign, Starboard suggested Darden spin off its real estate into an investment trust.
But considering that McDonald’s prefers owning real estate — and the income stream and system control it provides — that would seem to be an unlikely option, which Bernstein Research analyst Sara Senatore noted on a conference call about McDonald’s earlier this week.
McDonald’s has been periodically subjected to a push to sell company-owned restaurants to franchisees. In 2005, the activist Bill Ackman suggested that McDonald’s spin off company-owned restaurants and borrow against its real estate.
McDonald’s has appeared more willing in recent years to consider more refranchising, as its stock has been stuck in neutral. In May it said it would refranchise 1,500 company-owned restaurants, mostly outside the US.
Legacy brands have been relying more on franchising to operate their businesses in recent years, in part at the behest of activists and other investors, because it provides a greater return. It also puts the onus for capital costs on franchisees and shields the franchisor from the volatile prices for food.
McDonald’s two biggest competitors, Wendy’s and Burger King, have been on refranchising tears in recent years. Burger King sold nearly all of its restaurants, and Wendy’s is selling 500 more units after completing the sale of more than 400 locations to franchisees a year ago.
According to the Journal, Robbins hasn’t indicated how much McDonald’s stock he owns. His fund now manages more than $9 billion. The investor has generally considered himself more of a “suggestivist” than an activist, meaning that he prefers more amicable relationships with corporate managers. But Robbins has been taking a more active role in his investments.
It would seem possible, if not likely, that McDonald’s would get an activist investor who would push these or other issues in an effort to drive the company’s stock forward. The company’s stock has been basically flat since the beginning of last year, even after rising following CEO Don Thompson’s announced retirement two weeks ago.
Bloomberg suggested in October that an activist could target McDonald’s, saying that its generally low valuation, combined with its low debt and cash, could lure investors looking to push change.
One investor with a history of activism, Jana Partners, disclosed a miniscule stake in McDonald’s in November, though that as of yet hasn’t grown into anything more.
The company’s stock rose in December, for instance, on mere speculation that Ackman might get involved again. That came after Ackman told Bloomberg Television that, “If McDonald’s were run like Burger King, the stock would go up a lot.”
Contact Jonathan Maze at [email protected]
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