No Activist Fingerprints on McDonald's CEO Exit

Wall Street Journal

David Benoit

Jan 29, 2015

Did an activist break up the McFamily?

Few stocks have faced as much speculation about potential activist pressure as McDonald's Corp. MCD +5.06% But there are no real signs an activist investor played a role in last night's sudden change in the executive suite.

It's been well documented that McDonald's sales are struggling. In this era of activists taking big stakes and then using tough tactics to force change at an ever-expanding roster of companies, there's been much talk over whether an investor would target the Golden Arches.

But so far, there's no tangible evidence an activist is there.

"We suspect the board made that call without any special prompting," wrote Don Bilson of Gordon Haskett, who follows such speculation and tracks activism investments. "That is the most likely possibility."

A McDonald's spokeswoman said the outgoing CEO, Don Thompson, made his own choice to retire, WSJ reported.

With activists a hot topic in the markets "an activist may be looking" is the new "takeover target" rumor spread on message boards and Twitter. (Just Google GOOGL +0.16% "Carl Icahn Rumor" and you get at least five stocks that have moved on speculation that has never turned true.)

Some of the McDonald's speculation comes from actual move by activists.

Jana Partners LLC revealed a tiny position in its third-quarter holdings disclosure. Jana is one of the few handfuls of funds with the war chest to take on a company of McDonald's size. But its stake was just 0.1%, hardly the stuff of activist campaigns. And while Jana has made a name for picking fights and scoring wins, the majority of its investments are actually passive and small, like all signs show the McDonald's stake to be.

Another persistent bit of scuttlebutt has circled around Bill Ackman's Pershing Square Capital Management LP. Back in 2005, Mr. Ackman took a stake in McDonald's and urged it to actually make a new holding company for its company-owned stores and take that public. Mr. Ackman hung around for about two years, but sold by the end of 2007.

Since then, he's saddled up with Burger King, and owns a 19% stake in the common stock of its owner Restaurant Brands International Inc. QSR.T +3.00%, which is controlled by 3G Capital Partners LP.

Mr. Ackman has been publicly asked about whether he'd target McDonald's again and hasn't shied from saying the company could benefit from an activist. But last month he told Bloomberg Television that the stock wasn't cheap and that Burger King was taking market share away from McDonald's, reiterating he believes in the management of the King. He's not about to try to boost McDonald's at the potential expense of Burger King.

It's worth noting one of the other few activists with the funds and experience to target McDonald's, Trian Fund Management LP, has a similar block to going after McDonald's: It has a large stake in Wendy's Co.WEN +1.15%

Even today, some analysts are asking if an activist may still come around in the wake of the CEO departure.

Janney Capital Markets said "never say never." Miller Tabak wrote that the management changes will "keep potential activists at bay" though left open the door, saying "we contend the activists will be watching developments closely."

Could some activist have called for a meeting or built a quiet stake and spooked the board into acting? Maybe. But speculation is sometimes just that.