With this acquisition Ackman has again waded into the fast-food sector. While he will shake up the board on a variety of issues including director’s tenure, Pershing Square itself will be under immense pressure to perform given its lackluster performance last year.
Despite the fact that Mexican food giant Chipotle being hit with food safety issues, activist investor William Ackman’s hedge fund has taken a 9.9% stake in the fast food chain.
According to a regulatory filing, Ackman has stated that the company’s shares were undervalued and that he would be speaking to the management.
Chipotle’s shares closed at $414.07 on Tuesday.
After Ackman’s hedge fund, Pershing Square’s disclosure, Chipotle’s shares surged by 8.7% to $450 in extended trading. Ackman has purchased 2.9 million shares of the company.
On its part, Chipotle has welcomed the investment and has appreciated the vote of confidence in the company.
Last year Chipotle suffered from an outbreak of salmonella, E. coli and norovirus and its shares slumped by 42%.
Earlier this year in July, its chief creative and development officer, Mark Crumpacker, was arraigned on charges of possession of cocaine. The company responded to the charges by putting him on leave.
The purchase of this stake marks the first addition to Pershing Square Capital Management’s highly selective portfolio in almost a year. It comes at a time when the fund is knee deep in the red after years of brilliant performances.
This investment in Chipotle by Ackman gains significance since Chipotle will now have the backing of one of the industry’s most powerful investors behind it. Ackman is known for handpicking CEOs and for joining the board of companies in order to guide them for a turnaround.
Last month Pershing Square sold the remaining portion of its stake in Canadian Pacific, a railway company, thus freeing up some $1.5 billion in investments. Its assets under management is a whopping $12 billion, this includes investments for wealthy investors and for pension funds.
With this stake, Ackman has waded back into the familiar territory of the fast food sector. His previous successful bets include McDonald’s and Burger King. He is currently invested in Restaurant Brands International, a fast-food chain operator.
His main challenges in Chipotle will be confronting a board that has come under fire for having served too long and for being too chummy with the top management. In one newsletter of his company, CtW Investment Group, the tenure of directors have come under severe scrutiny.
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