Bill Ackman, CEO of Pershing Square Capital Management LP unveils $900 million bet on Starbucks at an investor conference on Tuesday. Currently, the activist hedge fund billionaire has 15.2 million shares on the world’s biggest coffeehouse chain. News of Pershing Square’s investment gave a push to the stock as Starbucks shares closed 2% higher at $57.71.
Ackman is betting on Starbucks to overcome slow-moving sales in its home market. In June, Starbucks shares took a major hit when Howard Schultz stepped down as executive chairman of company, followed by retirement of deputy general counsel and chief financial officer. Last month, the Seattle-based company announced a reorganization including job losses and leadership changes to convince investors, it can avoid heavy competition from major fast-food chains and luxurious coffee shops.
During his presentation at the Grant’s Fall 2018 Conference in New York, Ackman maintained a convincing tone as he revealed 1.1% stake in Starbucks. He praised Kevin Johnson, current Starbucks CEO for his recent actions as ‘encouraging’. The company’s existing challenges can be fixed with appropriate execution of the management, said Ackman.
The hedge fund manager commended the Starbucks’s portfolio re-evaluation such as the reorganization of its licensed and owned businesses, closing down of Teavana stores, cost-saving initiatives, and a three-year share repurchase program of $19 billion. On acknowledging Ackman’s investment on Tuesday, Starbucks released a statement, noting that the company is paving its way to maintain a productive dialogue with Pershing Square’s founder as they do with other shareholders.
According to Ackman, the company’s share price could be doubled up by the next three years if it meets the targets. Despite the slowdown of Starbuck’s growth in China, Ackman sees a high opportunity in this region that could eventually exceed the business in the US. Starbucks is Pershing Square’s latest venture in food and beverage sector after investing on Chipotle Mexican Grill two years ago, followed by stakes in Mondelez and Burger King, and McDonald’s Corp. This year, Ackman has also unveiled his positions in Nike Inc, Lowe’s Companies Inc, and United technology Corp with an asset of $8.4 billion.
Ackman had maintained a low profile after three consecutive years of losses with disastrous short bet against Herbalife and investment in Valeant, a scandal-ridden pharma giant. Later, he managed to turn previous losses into win which paid off in the past nine months with his hedge fund rise up to 13.8%.