Bill Ackman has found another typical investment for him: a high quality business with predictable cash flows, durable growth and a catalyst in the coronavirus to separate it from other stocks.
- Business: A quick service restaurant company operating three brands: Tim Hortons, Burger King and Popeyes Louisiana Kitchen
- Stock market value: $24 billion ($51.67 per share)
- Percentage ownership: 9.6%
- Activist commentary: Pershing Square has an extensive and successful track record investing in restaurants. The firm made six previous investments in this industry and has never lost money on any of them. Of the four that were 13D filings, they have averaged a 55.22% return versus 17.57% for the S&P 500.
Despite owning more than 5% of the company's common stock since 2012, for the first time Pershing Square has converted its 13G filing (generally indicating passive ownership) to a 13D filing, indicating activist intent.
Pershing Square has been an investor in QSR since 2012 when they invested through a merger into the holding company that contemporaneously was taken public in connection with the acquisition of Burger King by 3G Capital. Because they were a 5% holder before the company went public, Pershing Square was able to be a 13G filer even though they were not a passive holder. However, they were required to convert to a 13D filing when they acquired an additional 2% beneficial ownership within a year. That is what necessitated this filing.
QSR is comprised of Burger King, Popeyes and Tim Hortons and is a pure franchising company. So, with very little capex, the company just collects royalties which leaves it in an excellent position to weather the current COVID crisis. The Burger King brand was a turnaround story that was accomplished by 3G Capital and management. Tim Horton's is in a similar situation right now with flat same store sales, and Popeyes is doing great.
Pershing Square increased its position because it thinks the stock is cheap and is one example of throwing the baby out with the bathwater during the COVID crisis. While sales took a big 30%-plus hit initially, that has already partly recovered to the mid-teens. It should do even better as people aim to spend less on meals in this economy, do not have the option of eating at sit down restaurants and are even more comfortable using drive-thrus.
Pershing Square has likely been engaging with management since it first bought shares in 2012, and will continue to engage with management.
This 13D filing does not indicate a change in intent as much as a change in legal status.
Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio Manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.