Bill Ackman Invests In Chipotle Mexican Grill
Bill Ackman’s investment in Chipotle Mexican Grill increased shares by more than 5 percent on Tuesday. According to reports, the Pershing Square CEO purchased 2.88 million shares, which account for 9.9 percent of the struggling restaurant’s available shares.
Founded in 1993, Chipotle is a fast-food Mexican restaurant that sells freshly prepared burritos, corn chips, guacamole, and rice bowls. As explained on their official website, the company is committed to serving “food with integrity.”
Chipotle Mexican Grill strongly emphasizes their use of high-quality ingredients, which are sourced from smaller farms “that prioritize the long-term health of their land” and raise free-range animals that are free from antibiotics and hormones.
Although the restaurant was incredibly popular with customers seeking fresh and healthy fast food, the chain began struggling in 2015 when it was linked to several foodborne illness outbreaks.
In July of 2015, five people were diagnosed with E. coli after eating at a Seattle, Washington, Chipotle Mexican Grill. One month later, more than 200 people were diagnosed with norovirus after eating at a Chipotle in Simi Valley, California.
Over the next four months, outbreaks of E. coli, norovirus, and salmonella were linked to Chipotle restaurants in numerous states, including Illinois, Massachusetts, Minnesota, New York, Ohio, Oklahoma, and Oregon.
— Bloomberg (@business) September 7, 2016
By the end of 2015, nearly 500 people in 13 states suffered from foodborne illness linked to Chipotle Mexican Grill. Wired reports that the restaurant’s shares fell nearly 40 percent, thereby reducing the company’s value by an estimated $10 billion.
Although the shares have continued to plunge, Bill Ackman’s Chipotle investment sent stocks soaring on Tuesday in after-hours trading.
At this time, it is unclear whether the purchase will save the Mexican restaurant in the long run. It is also unclear whether the purchase will reverse Pershing Square Holdings’ recent downfall.
Fortune reports the Bill Ackman’s investments in Herbalife and Valeant Pharmaceuticals ultimately caused Pershing Square Holdings to lose an estimated $600 million in the first six months of 2016.
Despite the immense loss, Akerman is considered to be “one of the best in the business” due to his long-term record.
EnTrust Capital managing director Bryan Schneider confirmed the fund has “trimmed its Pershing Square position during the second quarter.” However, he said he has “not lost faith” in the hedge-fund manager.
— FOX Business (@FoxBusiness) September 7, 2016
It is difficult to predict whether Bill Ackman’s Chipotle investment will help boost the Mexican restaurant’s recovery. However, a number of Wall Street analysts have expressed reservations.
According to Business Insider, Stifel analysts said they “cannot fathom Pershing’s operational or mathematical investment thesis.” Morgan Stanley analysts seem to be equally confused by Ackman’s investment in Chipotle Mexican Grill.
“We see no quick fix to what CMG really needs, a revitalization of top line, and activism’s traditional tools for restaurants — spin-offs, re-franchising, asset sales and cost cuts — don’t appear to offer short-term opportunities, leaving few obvious quick levers to pull.”
In a statement about the investment, a Pershing Square representative contends the Mexican fast-food chain “has a strong brand.” The representative also said the purchase was made because the company’s stock is “undervalued and is an attractive investment.” According to reports Akerman is confident Chipotle will eventually recover from the devastating outbreaks.
A Chipotle Mexican Grill representative, who was not named, expressed appreciation for Pershing’s investment. In an email conversation with Fortune, the representative said the company was thankful for “the confidence they’ve expressed in our brand, differentiated offering, visionary leadership and strong growth opportunities.”
Bill Ackman’s Chipotle investment has increased stock values over the last 24 hours. However, it is unclear how long the prices will hold or whether they will continue to rise.