Roundup: Latest Activist Shareholder Salvos

Jan 13 2006 | 8:43pm ET

Would You Like Some Fries With That Proposal?

William Ackman is again stirring up grease fires at McDonald's Corp., saying that next week he will reveal his revised proposal to split up the fast food franchise.

Ackman's hedge fund, Pershing Square, holds 4.9% of the fast food giant's shares of common stock. He threw the first bun in his battle with the burger giant in November when he called for the firm to spin off a 65% stake in its company-operated stores and to borrow $15 billion to repurchase shares in an effort to boost the company's stock price.

McDonald's board rejected Ackman's plans, saying they would negatively impact the firm's franchises. Ackman said he would revisit his ideas, taking management's concerns into consideration. His revised plans are reportedly more "franchise friendly" than the first ones, but they are still expected to get some store owners hot under the collar. 

New York Firm Files Charges, Calls For Heads

New York hedge fund firm Costa Brava Partnership III has gone beyond sending the usual angry shareholder letter to a company in which it holds a 16% stake. It is taking the company to court.

Costa Brava, which in late December sent a letter to Telos Corp. demanding resignations from two executives, has filed charges against the defense technology company, accusing the firm of misstating its financial records for almost a decade.

The hedge fund is calling for Chief Executive John Woods and Chief Financial Officer Michele Nakazawa to step down. Costa Brava would also like to see Telos restructured.

The well-known defense firm, which has recently won large government contacts, declined to comment on the matter, as did a spokesman at Costa Brava.

Investor Pressures Burger Joint to Cut The Fat

Wendy's International is continuing to follow the original timetable to spin off its coffee and doughnut franchise, Tim Hortons. Bob Bertini, a spokesman for Wendy's, said that media reports stating that the fast food company was speeding up the timetable following pressure from shareholders, were false.

Bertini said that assuming the IPO goes through as planned in March of this year, the spin off will occur 9-18 months after that date, which has been the plan all along.

Billionaire investor Nelson Peltz, who owns a 5.5% stake in the fast food giant, has been calling on Wendy's to shape up its act. Last month, Peltz wrote in an SEC filing that he would like to see Wendy's spin off some of its businesses and restructure. In the same filing, he wrote that he does not want to take over companies, rather, he prefers to spur them into action with threats of launching a proxy fight for seats on their boards, calling it "operational activism."

So, is pressure from Peltz behind Wendy's move to cut the caffeine? Judging by when Wendy's first laid out its plans for Tim Hortons, which was January 2005, the letter had little to do with the move. Yet, we will just have to wait and see how fast Wendy's moves to shake off Tim Hortons and shape itself up.

Highfields Sends Scathing Letter to Mellon

In late December, hedge fund Highfields Capital Management sent a scathing letter to the board of Mellon Financial, urging its chief executive to shake things up.

"Mellon has been unable to create value for its shareholders by dint of its being substantially engaged in both [processing and investment management]," wrote Richard Grubman, managing director of Highfields, in the letter. "Our priorities for Mellon are to restructure so as to capture the maximum amount of revenue and expense synergies in both its businesses," and to "get the best people to run both businesses."

A spokesman for Mellon dismissed the allegations. "The 12/22/05 letter they chose to post on PRNewswire contains inaccuracies, which Highfields has been providing directly to the media as well," a spokesman wrote in an email. "Mellon has been and remains committed to creating long-term value for all shareholders and we will continue to successfully execute on our strategy."

Bally's Fitness Told To Shape Itself Up

Hedge funds Pardus Capital Management and Liberation Investments are pressuring Bally Total Fitness Corp.'s CEO Paul Toback step down, and are also aiming to overhaul the company's board. The hedge funds reportedly oppose a multi-million dollar stock option package proposed by Bally's board. If approved by shareholders, the package would give 2.5 million shares to Toback and other Bally's executives. They would then be allowed to cash out of those shares when the company is sold.

Bally's is battling back. On Monday, the Chicago-based health club chain sent a letter to investors asking them to vote against the proposals from the hedge funds, which will be put forth for a vote on Jan. 26 at the annual shareholder meeting.

"It has become clear to Bally's board of directors and management that the sole agenda of these two hedge funds is to disrupt the board's strategic process in favor of their own narrow interests," the company wrote in the letter, which went on to say that management is implementing a successful turnaround plan.

Bally put itself up for sale last month and hired The Blackstone Group and J.P. Morgan to look for buyers.

Kerkorian Kicks GM's Tires

Kirk Kerkorian, who owns 7.9% of General Motors's shares, is aiming to give the giant automaker a badly needed tune-up.

Early this week Kerkorian urged GM to cut its dividends. And Kerkorian isn't alone, other shareholders and the company's unions are also pressing for dividends to be slashed in an effort to save the ailing automaker money.

If GM goes ahead with the move, bondholders will likely jump for joy, while shareholders, who have come to enjoy GM's large dividend payouts, will not be happy campers.


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