Daily Management Review

Shares Jump as Ackman Buys into Chipotle, says will talk to Management


09/07/2016




Shares Jump as Ackman Buys into Chipotle, says will talk to Management
After the Mexican food chain Chipotle Mexican Grill Inc, the once high-flying company, was battered by food-safety issues, activist investor William Ackman's hedge fund took a 9.9 percent stake in fast-casual Mexican food chain.
 
The company's shares, which closed at $414.07 on Tuesday, were undervalued and that he would be speaking with management, the billionaire manager said in a regulatory filing late on Tuesday.
 
After Ackman's Pershing Square disclosed its ownership of 2.9 million shares in the company, Chipotle's shares rose as much as 8.7 percent to $450 in extended trading.
 
Chipotle welcomed their investment, and appreciated the confidence they had expressed in the company as the company said that it learned of Pershing Square’s acquisition only on Tuesday.
 
Chipotle’s shares tumbled 42 percent over the last 52 weeks after the company  was tied to E. coli, salmonella and norovirus outbreaks last year. And in July, the company put on keave Mark Crumpacker, its chief creative and development officer who was arraigned on charges of possession of cocaine.
 
At a time when Pershing Square Capital Management is still deep in the red after years of winning performance, Chipotle marks the first addition to the firm’s highly concentrated portfolio in nearly a year. A spokesman for Ackman declined to comment beyond the firm's filing.
 
William Ackman is among the most powerful investors in the industry who has joined corporate boards to try and guide turnarounds and is known to often handpicked chief executive officers and the investment in Chipotle puts the company squarely into his path.
 
The remainder of its investment in railway Canadian Pacific was sold off last month, freeing up some $1.5 billion, by Pershing Square, which oversees $12 billion for pension funds and other wealthy investors.
 
Ackman is currently invested in Restaurant Brands International, a fast-food chain operator and has previously made successful bets on Burger King and McDonalds, and with Chipotle, he wades back into the fast-food sector.
 
The Chipotle board, which has been accuse dot being too chubby with top management and has come under fire for having served too long, would be faced with Ackman now. Ackman already has company in the form of CtW Investment Group, which published a letter earlier this year criticizing director tenure and other matters and hence is no stranger to shaking up boards.
 
Ackman sits on the boards of Howard Hughes  and Valeant and he resigned from the board of Canadian Pacific on Tuesday.
 
Chipotle is not widely owned by many hedge funds and its biggest investors are mutual funds Fidelity and Vanguard. However hedge funds had eyed the company before. The company's shares were sent tumbling after David Einhorn, who runs Greenlight Capital and is widely followed saying he thought they were overvalued, about four years ago.
 
Ackman is under pressure to perform with his investment. posting one of the biggest losses in the industry, his Pershing Square Holding fund is off 14.3 percent for the year, posting one of the biggest losses in the industry.
 
(Source:www.reuters.com) 






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