Pershing Square Capital Management, the embattled hedge fund manager run by Bill Ackman, is buying the dip when it comes to share of Chipotle Mexican Grill (CMG). Pershing Square believes Chipotle offers a “strong brand, differentiated offering, enormous growth opportunity, and visionary leadership”, at an attractive, discount valuation.
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Pershing said that it meant to engage in discussions with the company’s management and board of directors related “to the governance and board composition, business, operations, cost structure, management, assets, capitalization, financial condition, strategic plans, and the future of the issuer”. Ackman, who serves as Pershing Square’s chief executive officer, is looking to Chipotle to help him bounce back from his own challenging year.
There’s no “quick fix” for Chipotle, which needs sales to recover, said Morgan Stanley analyst John Glass.
-Ackman bought 554,213 shares of Chipotle common stock for $224,491,131 (including commissions).
Chipotle shares in June sank to their lowest level in three years following a bearish report from a Deutsche Bank analyst.
At almost 10%, Ackman will own a fairly large percentage of the company’s shares, the most of any investor except Fidelity Investments. It is also unclear whether the purchase will reverse Pershing Square Holdings’ recent downfall. Investors voted to keep the directors at Chipotle’s annual meeting in May, but they did pass a proxy-access measure that may make it easier to submit future proposals.
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But Mr. Ackman doesn’t tend to get his hands dirty to understand consumer businesses – unlike Starboard Value’s Jeff Smith, who educated himself about Olive Garden parent Darden Restaurants by waiting tables and helping in the kitchen.
Chipotle stock has been struggling due to continuous fallout that stemmed from the outbreak of series of food-borne diseases that hit several of its restaurants in the U.S. since end of a year ago.
Chipotle has, historically, focussed on new unit additions as a key driver of growth. The company reported $0.87 earnings per share for the quarter, missing the consensus estimate of $0.93 by $0.06. And it is chaired by Chipotle founder and co-CEO Steve Ells.
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Insider Activity: Corporate insiders look pessimistic about the outlook of the company stock that they seem to offload shares while they have -8.63 retreated so far this year. The Mexican food chain anticipates to launch a new chain under the name of Tasty made, with the first location scheduled to open in Lancaster, Ohio, this fall.
