McDonald (MCD) undervalued - by Bill Ackman

**blast_investor** Tue Nov 29, 2005 11:29 pm

McDonald (MCD) undervalued - by Bill Ackman
Bill Ackman, founder of Pershing Square Capital Management, a hedge fund that is among the largest shareholders of McDonald’s (NYSE: MCD), presented his analysis of the company at the Value Investing Congress on Tuesday, November 15, from 9:20-10:20am (EST).

Ackman, a well-known activist investor, shared his investment thesis, why he believes the company is undervalued and why McDonald’s should restructure itself to unleash substantial shareholder value.

Full presentation:

http://www.valueinvestingcongress.com/Final-Pres.pdf

**blast_investor** Wed Nov 30, 2005 1:05 am

Bill Ackman's MCD pick is very interesting and his idea of valuing MCD as real estate stock is very refreshing too. Bill certainly went into
details of how to value and unlock MCD's real estate value in a convincing way.

On the other hand, I am not still not convinced of that after restructuring MCD as Bill spelled out, MCD would trade or be valued as REIT stock.

For one thing, MCD parent after restructuring would be not so attractive REIT:
(1) highly concentrated real estate business into MCD brand only.
(2) Due to C-corp nature, MCD will not likely to pay high dividend as REIT would do.

Therefore, I am inclined to value MCD parent as restaurant only after restructuring.

**blast_investor** Wed Nov 30, 2005 12:05 pm

I added vote portion on MCD pick. Let's see how many agree or disagree with Mr. Ackman on the issue of valuing McDonald as real estate stock after restructuring.

Mr. Ackman's idea of restructuring MCD is very refreshing and not very difficult to implement. I summarize Ackman's idea as below:

(1) IPO MCD's owned portion of restaurant, immediately leverage up the IPO'd company to enhance return on equity. After restructuring, McDonald parent company does not own any restaurant.

(2) After restructure, the majority of earning for McDonald parent company is from real estate fees. Therefore, valuing McDonald parent to REIT and Mr. Ackman showed that MCD is very under-priced.

Roughly MCD is worth $55 to $60 by Mr. Ackman from the restructure.

**blast_investor** Wed Nov 30, 2005 12:37 pm

Here is my idea to really make MCD into real estate stock:

Instead of one holding company for MCD parant after restructure, split MCD parent into 2:

McDonald real estate investment trust (REIT) and MCD company without real estate.

In that kind of restructuring, there is no reason not to value MCD reit trust portion as REIT stock. REIT portion would need to pay out dividend too.

Of course, that kind of further split is not likely because that way, MCD parent is smaller than REIT in terms of earning power and MCD may lose control of its restaurant business because of further split. MCD REIT company may want to lease buildings to MCD's competitors in case of split and hurt MC own brands.

Therefore, for the arguing purpose, MCD restaurant business is still the core, and real estate is to support restaurant business, not the other way around.