Industry watchers weigh in after Bill Ackman’s $900M bet on the brand
Three days after activist investor Bill Ackman revealed that his Pershing Square Capital Management had a $900 million stake in Starbucks, the coffee company said it was initiating a $5 billion accelerated share repurchase program.
The move was part of an existing commitment to deliver $25 billion of value to shareholders through 2020, the company said.
But the news earlier this week that Ackman — whose company also has invested in Chipotle Mexican Grill and Burger King parent Restaurant Brands International — had bought 15.2 million shares of Starbucks, had industry watchers speculating what it might mean for the coffee company.
Starbucks told Nation’s Restaurant News that the share repurchase was not done in reaction to Ackman’s investment. Rather, the buyback was executed Oct. 1, “prior to the Ackman stake, though the disclosure was made today,” the company said.
“This [buyback] is just one component of our ongoing strategy of returning cash to shareholders,” the company said.
Starbucks said it maintains “a transparent relationship” with all shareholders. Ackman will be no different.
“We view the active, engaged dialogue that we have with shareholders as critical input into our strategic approach and we value constructive feedback on delivering long-term shareholder value,” the company said in a statement to NRN. “We look forward to maintaining a productive dialogue with Mr. Ackman as we do with all of our shareholders.”
The Seattle-based company has struggled to meet shareholder expectations. Earlier this year, Starbucks said it would shutter 150 stores, three times the average number of annual store closures. The chain also plans to slow down licensed store growth while stepping up expansion in China.
In announcing his firm’s investment, Ackman called the move a rare opportunity to buy one of the world’s best businesses at a discount. He also said he liked Starbucks’ position in China, where the brand has a “long runway” of growth, the presentation stated.
Restaurant industry analyst Roger Lipton said he believes Ackman “will be a completely passive shareholder” of Starbucks.
The reveal of the Starbucks stake comes after three years of struggle at Pershing. Earlier this year, The Wall Street Journal said Ackman is “losing investors at a rapid pace.”
“After three years of subpar performance, most investors in his Pershing Square Capital Management LP asked for money back, and pulled about two-thirds of the cash that could be withdrawn at the end of last year,” the Post reported in April, citing “people familiar with the matter.”
But is Starbucks the way to redemption?
Lipton, president of Lipton Financial Services in New York, doesn’t think so.
“I think he’s overstating the return he’s going to make,” he said.
Ackman also owns significant positions in Chipotle Mexican Grill and Restaurant Brands International, parent to Burger King and Tim Hortons and Popeyes Louisiana Kitchen. Lipton said these three restaurant positions represent about 4 percent of Ackman’s $8.3 billion portfolio.
“Of his three major restaurant investments, [Starbucks] is the best of them. But, it won’t meet his objectives.”
CNBC’s Jim Cramer said Ackman’s position won’t likely impact share value at Starbucks.
"Activists work best when management is doing a bad job. Starbucks has good management — I think CEO Kevin Johnson is slowly but surely righting the ship [and] doing it the right way,” Kramer said earlier this week. “I hope he's just not distracted by Ackman.”
Starbucks shares have hovered around the same value since January 2018. For the first two months of the year, the stock traded at about $56 per share. On Friday, the stock closed at $56.45 a share. That’s up nearly 3 percent from the previous day, but down from a brief surge earlier in the week when the stock closed at $57.71 after Ackman’s reveal.
Contact Nancy Luna at [email protected]
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