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Ackman's Pershing Square unveils $900 million stake in Starbucks

Stock MarketsOct 09, 2018 06:55PM ET
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© Reuters. FILE PHOTO: William Ackman, founder and CEO of hedge fund Pershing Square Capital Management, speaks during the Sohn Investment Conference in New York

By Svea Herbst-Bayliss

NEW YORK (Reuters) - William Ackman said on Tuesday his activist hedge fund Pershing Square (NYSE:SQ) Capital Management LP has built a roughly $900 million position in Starbucks Corp (O:SBUX), betting the world's biggest coffee chain can overcome stagnant sales in its home market.

Ackman's unveiling of a 1.1 percent stake in Starbucks comes as the Seattle-based company is trying to convince investors it can fend off heavy competition from rivals, including fast-food chains and high-end coffee shops. Last month, it announced a reorganization that includes leadership changes and job losses.

While activist shareholders are known to pick fights with chief executives and corporate boards, Ackman sounded a conciliatory tone on Tuesday, as he unveiled Pershing Square's investment at the Grant's Fall 2018 Conference in New York.

Ackman said recent actions by Kevin Johnson, who took over from Howard Schultz as Starbucks CEO last year, were "encouraging" and that Starbucks' recent challenges are "fixable with appropriate management execution." Schultz stepped down as Starbucks' executive chairman in June.

Ackman praised the re-evaluation of Starbucks' portfolio, the closure of Teavana stores, a rejiggering of its owned and licensed businesses, its cost-cutting initiatives and a $19 billion three-year share buyback program.

"We look forward to maintaining a productive dialogue with Mr. Ackman as we do with all of our shareholders," Starbucks said in a statement. Pershing Square declined to comment further.

Starbucks shares rose as much as 5.5 percent on the news and closed 2.1 percent higher at $57.71 on Tuesday. The shares have been flat this year, while the S&P 500 Index (SPX) has risen 8 percent.

In his presentation dubbed "Doppio" - a reference to a double shot of espresso - Ackman said Starbucks' share price could more than double over the next three years if the company can meet its targets.

Pershing Square built its stake in Starbucks in the last three months, according to people familiar with the matter. It was not immediately clear whether Pershing Square had any discussions with Starbucks prior to unveiling its position.

Ackman has made his name in the activist shareholder world as a passionate advocate of his positions, even breaking down in tears on occasion while defending his bets on companies such as Herbalife Nutrition Ltd (N:HLF) and Target Corp (N:TGT).

After three years of losses at Pershing Square, Ackman has adopted a lower profile that appears to be paying off, with his hedge fund up 13.8 percent in the first nine months of the year. The average hedge fund has gained less than 2 percent during the same period.

This is partly thanks to Ackman's managing to turn previous losses into wins. Last year, he lost a bitter proxy contest against payroll processing company Automatic Data Processing Inc (O:ADP), yet the company's recent strong performance has boosted his portfolio.

Pershing Square, which has $8.4 billion in assets under management, has also unveiled positions this year in Nike Inc (N:NKE), United Technologies Corp (N:UTX) and Lowe's Companies Inc (N:LOW). None of these investments resulted in a public fight, and Pershing Square has already exited Nike.

Historically only one or two of Ackman's roughly one dozen positions develop into the kind of public fights that make headlines, like the short bet against Herbalife or his effort to rescue drug maker Valeant that cost him billions of dollars.

Ackman also has experience in the food retail sector, having invested in McDonald's Corp (N:MCD) over 10 years ago and in Chipotle Mexican Grill Inc (N:CMG) more recently.

Ackman's Pershing Square unveils $900 million stake in Starbucks

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