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McDonald's Rejects Call to Restructure

January 19, 2006|From Reuters

NEW YORK — McDonald's Corp. on Wednesday rejected a plan put forward by a major shareholder that called for the world's largest fast-food company to restructure, form a new company out of its company-held restaurant unit and sell a 20% stake to the public.

McDonald's two months ago rejected a previous plan advocated by the shareholder, hedge fund Pershing Square Capital Management.

In a New York meeting Wednesday, Pershing founder William Ackman called on McDonald's to sell 1,000 of its 8,000 company-owned restaurants in mature markets to franchisees and reinvest that money in building markets in Asia, Russia and elsewhere.

Ackman told an overflow crowd of investors and analysts that McDonald's company-owned McOpCo restaurant division was underperforming compared with peers. Going public would force the division to disclose its financial performance to the market and allow it to reward managers with share incentives for improvement, he said.

"We think resources are not allocated efficiently today because this business is not independent," Ackman said.

The Oak Brook, Ill., company disagreed. "We continue to believe that an IPO of McOpCo would not deliver the value already being created by our current strategy," McDonald's said in a statement. Ackman "has not presented anything fundamentally new beyond what we have discussed with him previously."

But McDonald's admitted that McOpCo wasn't performing as well as it would like. "We have already said that improving the performance of McOpCo, especially outside the U.S., is one of our priorities," McDonald's said. It said it would "share more details" of its plan during its 2005 earnings call next Tuesday.

Ackman said he welcomed the company's ideas. "If they have a better way of improving McOpCo underperformance and creating shareholder value, we're all ears," Ackman said. But he said he wasn't ruling out stepping up his activism.

Pershing's public debate with McDonald's began in November. The fund sought investor backing for a plan to prompt the chain to spin off 65% of its company-owned restaurants in a stock offering valued at $3.27 billion. McDonald's said the plan would not benefit shareholders and would be a distraction from its primary business.

McDonald's shares rose 40 cents to $34.99.

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