Dale and other wise eyes - any guess how this will effect CMGs stock price? TIA
McDonald's to spin off rest of Chipotle restaurants
Wednesday April 26, 8:31 pm ET
By Paul Thomasch
NEW YORK (Reuters) - McDonald's Corp. (NYSE:MCD - News) on Wednesday said it would part with its remaining stake in Chipotle Mexican Grill (NYSE:CMG - News) restaurants, selling 5 million more shares in the next two months and completely exiting by the end of the year.
McDonald's, the world's largest fast-food company that has revitalized restaurant sales with a turnaround strategy that included new products, extended hours and cashless payments, said it would sell about 5 million shares of Chipotle within the next two months and use proceeds to buy back its stock.
It then plans a tax-free exchange of remaining Chipotle shares for McDonald's shares later in 2006, completing the divestment of its stake in the Mexican food grill that it began earlier this year.
While McDonald's has revitalized sales with its three-year turnaround plan, management nonetheless has been forced to defend its strategy in response to criticism by an investor, hedge fund Pershing Square Capital Management.
For months Pershing pressed McDonald's to spin-off some company-owned restaurants -- a move management said would not create any more value for shareholders than the current business plan.
But management has pledged to return capital to investors, and will return even more with the Chipotle deal.
McDonald's, which has more than 30,000 restaurants, spun off Chipotle in an initial public offering in January that raised more than $170 million. It currently owns about 69 percent of Chipotle.
As part of its turnaround strategy, McDonald's has downplayed its focus on smaller chains like Chipotle and Boston Market while revamping its flagship burger chain.
"Since we made our initial investment in 1998, Chipotle has grown from 16 restaurants in the Denver area to a strong and popular restaurant concept with more than 500 locations throughout the U.S.," McDonald's Chief Executive Jim Skinner said in a statement.
"However, attracting more customers to McDonald's remains our greatest opportunity for long-term profitable growth," he said.
The Chipotle move comes at a key time for McDonald's, which for several years has tried to concentrate more closely on its iconic, namesake chain.
"I suspect they recognized that small companies like Chipotle are too time consuming to manage," said Hal Sieling, a restaurant consultant.
"It literally -- from a corporate standpoint -- takes just as much time to figure out what to do with Chipotle as to figure our what to do with hundreds of McDonald's restaurants," he added.
Under McDonald's plan, proceeds from the sold shares will be used to buy back shares that would be in addition to the company's pledge to return $5 billion to $6 billion to shareholders through dividends and share repurchases during 2006 and 2007 combined.
"McDonald's has run out of high return places to invest cash like they did over the last 50 years, so the prudent decision is just give it back to shareholders," said Carl Sibilski, managing director with Oyster Capital Management.
Shares of Chipotle, a fast-growing chain and pioneer in the "fast-casual" dining segment, closed down $1.05, or 2 percent, at $51.10 on the New York Stock Exchange before the announcement.
The shares are still trading at more than twice their initial offer price of $22 in January, when Chipotle sold 6.1 million shares and McDonald's offered 1.8 million.
Shares of McDonald's rose 26 cents, or 0.77 percent, to $34.11 in New York Stock Exchange trade. |
