Pershing Square Management's Bill Ackman targets Starbucks
Billionaire investor William Ackman, known on Wall Street for his high-pressure tactics to spur companies he invests in to change their ways, has a new target in his sights: Starbucks.
The activist investor told a conference in New York on Tuesday that his hedge fund, Pershing Square Capital Management, has taken a stake worth about $900 million in the coffee-shop chain, according to multiple media accounts citing attendees.
Starbucks shares jumped nearly 6 percent following the reports.
In his presentation, dubbed "Doppio," Ackman said Starbucks shares can more than double over the next three years. One avenue of growth, in his view: China.
"China will become increasingly important to the value of Starbucks over time as it represents Starbucks' single-largest unit growth opportunity with the best store-level unit economics," according to Pershing Square's presentation.
In the U.S., Starbucks can also grow in the Midwest and South, Ackman said, describing his investment as a "Rare opportunity to own one of the world's best businesses at a discount."
Starbucks said it would take Ackman's views into account.
"We view the active, engaged dialogue that we have with shareholders as critical input into our strategic approach, and we value constructive feedback on delivering long-term shareholder value," a Starbucks spokesperson said a statement sent to CBS MoneyWatch.
Ackman, who this year has also disclosed new stakes in industrial equipment maker United Technologies and hardware chain Lowe's, drew attention in recent years for his high-profile battle with Herbalife. He opted to cut his losses earlier this year after betting against the nutritional-supplement seller, comparing it to a Ponzi scheme.
In 2017, Pershing also took what it described as a "large" loss on its investment in Valeant, a scandal-plagued Canadian drug manufacturer.
Howard Shultz in June stepped down as chairman of Starbucks, which has seen lackluster sales growth in the U.S. even as its overseas business booms.
Starbucks' underwhelming growth in recent years has led some Wall Street analysts to speculate it could be the target of shareholder activists, who invest in companies in order to lean on management to boost the stock price.
"Growth has slowed consistently in the core U.S. business over the past three years, as [Starbucks] now competes with others to retain the customers it has and to activate new customers," Bernstein analyst Sara Senatore said in a research note.
Another prominent activist, Nelson Peltz of Trian Funds took a position in Starbucks in 2008 and sold it later that year. At the time, Schultz had returned as CEO after the chain fell on hard times.
One concern with Starbucks, according to some stock analysts: Starbucks' reliance on gimmicky drinks like the Unicorn Frappuccino and the Crystal Ball Frappuccino to drive sales.
