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Ackman wears many crowns in Burger King deal

A Burger King logo is seen in central Ankara March 8, 2012. (Reuters/Umit Bektas)

BOSTON: In the deal to take Burger King public again, hedge fund manager William Ackman is wearing many crowns.

Ackman co-founded Justice Holding Inc (JUSH.L), the London-based investment vehicle which is taking a 29 percent stake in Burger King. He also has a stake in 3G Capital Management LLC, the buyout shop which took Burger King private in 2010 and is selling a portion of its interest to Justice.
 
Moreover, Ackman runs Pershing Square Capital Management, the $10 billion hedge fund that will own a 10 percent stake in the No. 3 U.S. hamburger chain long known for its grinning "King" advertising mascot which was retired last year.
 
From his midtown Manhattan office, Ackman served as the bridge between 3G Capital and Justice, fashioning a multi-tiered role for himself to create an innovative deal that he said should pay off big for everyone. Justice's shares will stop trading on the London Stock Exchange when the deal is done and be listed as Burger King Worldwide Inc in New York instead.
 
With Ackman having a stake in so many of the parties involved, the deal could raise questions about possible conflicts of interest cropping up in the $2 trillion hedge fund industry at a time when managers are doing a lot more than selecting and holding securities.
 
"The time frame of this particular transaction just leaves you scratching your head," said Charles Elson, a professor of corporate governance at the University of Delaware, noting that Burger King went private less than two years ago to revamp itself out of the public view.
 
"These kinds of deals can happen in the private sector, and because the public had been taken out of Burger King, there was no one to be harmed here."
 
Conflicts of interest are not unusual in such deals, industry analysts said. Goldman Sachs was recently reprimanded by a U.S. judge for having brokered the sale of energy company El Paso to Kinder Morgan, a firm in which its private equity arm also holds a big stake.
 
Indeed Ackman took pains to put any whiff of possible impropriety to rest on a 90-minute long conference call with would-be investors and analysts. He, not one of the other Justice founders, took center stage to explain the deal and answer questions.
 
To avoid the potential for any actual or perceived conflict of interest, Ackman said on the call that he will not receive any cash in the deal. He also promised to retain his shares until after his firm, Pershing Square, divests Burger King shares.
 
He was upfront about how the deal was born, giving insight into how the prominent hedge fund manager who has long had an appetite for fast food restaurants spun his enormous Rolodex to solve a number of potential problems.
 
"I put my Justice hat on and made my marketing pitch for Justice," Ackman said. He described how he persuaded 3G to abandon its plans to take Burger King public again down the road, and instead sell a stake now to Justice, which had passed on many other investment opportunities in the last months.
 
Even before this deal, Ackman was fashioning himself as someone who enjoys bringing people together. He is seen as someone who is fast becoming one of the world's foremost activist investors, putting himself in line to succeed aging corporate raiders such as Carl Icahn.
 
With his polished and initially polite offers to help management shape up to benefit shareholders like himself, Ackman can be both welcomed and loathed in the corporate world. At Target he lost a bruising and expensive proxy fight in 2009.
 
Since then Ackman's efforts appear to have become gentler if not kinder as he works more behind the scenes to make sure things go his way.
 
Many investors say the hedge fund manager was instrumental in poaching Apple Inc (AAPL.O) Senior Vice President Ron Johnson, credited with conceiving the Genius Bar technical support station in Apple retail stores, to run JC Penney. His fabled efforts include flying across the country to dine with Johnson in California.
 
However, Ackman may not be on the front lines as the work continues to buff up Burger King, which lags rivals McDonald's Corp (MCD.N) and Wendy's Co (WEN.O).
 
"I don't need to join the board of the company because they are already doing the things we need them to do," Ackman said. Instead Justice Holding's co-founders, Martin Franklin and Alan Parker, will join the board.
 
And in a dig at McDonald's where Ackman once pushed hard as a shareholder to have the company spin off the restaurants it owns, the manager called the fast food company "enormously bloated."
 
Burger King, he vowed, will be an "aggressive competitor."

 

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