As previously announced, McDonald’s Corporation (“McDonald’s”) is planning to dispose of its remaining interest in Chipotle Mexican Grill (NYSE:CMG) through a tax-free exchange of Chipotle shares for McDonald’s stock.
In light of its contemplated repurchase of McDonald’s stock through the exchange offer, McDonald’s is today announcing that it was notified that three investment funds managed by Pershing Square Capital Management L.P. or its affiliates planned to file on or about August 15, 2006 necessary notifications under the Hart-Scott-Rodino Antitrust Improvements Act to acquire in excess of $793.8 million of McDonald's common stock. The prescribed "waiting periods" under the Act must expire or be terminated before these funds may increase their ownership level as specified in the notices received by McDonald's.
In other words, Pershing Square has declared an intent to buy a MINIMUM of $793.8 million of McDonald's stock (even this amount would be 1.8% of the company and make Pershing Sq. the 7th or 8th largest shareholder). The story below captures well why this is important, but here are some additional thoughts:
a) Given that Pershing is unlikely to put more than 50% of its capital into one position -- they're aggressive, but not THAT aggressive! -- they probably have raised substantial additional capital.
b) One only makes a Hart-Scott-Rodino filing to declare an intent to seek control or to influence a company. Typically, what usually follows is a bid for the company (unlikely in the case of MCD) or a proxy contest, which is more likely.
c) Pershing has committed to buy common stock (earlier reports were that Pershing's position was primarily in the form of options). This further reinforces the case for a possible proxy contest (stock has voting rights; options don't) and shows that Pershing is in for the long run -- the company won't be able to dismiss Pershing as short-term speculators.
Overall, we are very pleased with this development. MCD is tied with BRK as our largest position.