Activist investor picks up stake in Chipotle Mexican Grill

As you may have heard, Bill Ackman's Pershing Square has taken a large stake in Chipotle, the purveyor of chips, guac, burritos, and e.Coli outbreaks so bad they drove a senior executive to drugs.

Still reeling from the impact of the food-borne illnesses, Chipotle Mexican Grill Inc.

While Pershing Square's move makes management a bit more likely to effect changes that would please shareholders, it would also likely mean continued volatility for Chipotle's shares, Nomura analyst Mark Kalinowski said in a note.

Pershing Square Holding also announced that it will discuss the ways in which Chipotle can revamp its governance, cost structure, strategy, and operations.

Ackman could use a proxy fight to challenge the board - a tactic that has worked at restaurant companies in the past.

Mr. Ackman doesn't tend to get his hands dirty to understand consumer businesses - unlike Starboard Value's Jeff Smith, who educated himself about Olive Garden parent Darden Restaurants by waiting tables and helping in the kitchen.

Part of Ackman's plan may be to push the chain to sell locations to franchisees, according to Stephen Anderson, an analyst at Maxim Group.

Chipotle has fought to win customers back since outbreaks of E. coli and norovirus were linked to its restaurants late past year. During the day, the stock corrected to an intraday low of $430, however, the bulls stepped in and pushed the price higher to close in the green at $438.45 with a gain of 5.89% for the day. Since its all-time high a year ago, the stock is down more than 45%. The chain is in dire need of a new message at a time when its marketing chief is on administrative leave for allegedly buying cocaine, and it's still embroiled in a federal criminal probe of its food-safety issues. The company said when it reported quarterly results on July 21 that comparable sales trends in July had improved by 200 to 300 basis points.

Shares of Casey's General Stores (NASDAQ: CASY) fell in after-hours trading following its disappointing fiscal first-quarter earnings. According to consensus Metrix, the analysts expected the decline of 20.6%.

Ackman's filing said his fund believes Chipotle is undervalued but that it "has a strong brand, differentiated offering, enormous growth opportunity, and visionary leadership", making it an attractive investment.

Business Insider reports Stifel analysts said they "cannot fathom Pershing's operational or mathematical investment thesis".

In 2005, Mr. Ackman called on Wendy's Co.to spin off its Tim Hortons coffee chain, which the company did the following year.

Chipotle Mexican Grill Inc. It has been criticized for having all white and nearly all male board members.

Credit Suisse said it expects Pershing could urge Chipotle to slow this domestic growth and cut back on its new concept investment in order to focus on current restaurants at its flagship chain.

  • Zachary Reyes