Pershing Square Capital Invests $900 Million in Starbucks

Starbucks logo
(Photo: REUTERS)

Pershing Square Capital, the hedge fund owned by activist investor Bill Ackman, recently closed an investment deal with Starbucks worth $900 million. Mr. Ackman himself confirmed the deal during a conference in New York on Tuesday.

The investment deal will give Pershing Square Capital 15.2 million shares in Starbucks, a prominent company widely known for its coffee products. The deal sent investor confidence to the roof, an important factor that caused Starbucks stock price to skyrocket. As the market closed on Tuesday, Starbucks stock went up by 2.5 percent.

Based on Mr. Ackman's presentation, the average price of each Starbucks share that he bought is $51. Immediately following his deal, Starbucks share price went up by 2 percent to $57.71. This represents an immediate growth by 13 percent.

During the conference, Mr. Ackman had a presentation highlighting its decision why Starbucks is a good investment. Mr. Ackman said that Starbucks still has a lot of room to add stores well within the country. He added that since Starbucks also has a generous benefit and wage plan, the company will not suffer the same fate as some company once the minimum wage goes up.

It is important to note that market data shows that the coffee category is showing signs of positive growth. Moreover, and this is probably the most important caveat--, Starbucks' business in China continues to grow. This is an indication of the company's possible engine for expansion and growth.

Mr. Ackman said that his decision to invest in Starbucks was encouraged by the recent actions of the company's Chief Executive Officer Kevin Johnson who, most notably, decided to close Teavana stores. Mr. Ackman said that Starbucks continues to show positive signs of growth. He also predicts that the company's shares could possibly double in value within the span of the next five years.

Aside from its recent Starbucks investment, Pershing Square Capital also holds stakes in other corporation in the food and drinks industry. Among the most prominent is Chipotle. The company also owns stakes in Restaurant Brands International, the company that owns Burger King, Tim Hortons, and Popeyes.

It is important to note that while Mr. Ackman has had a storied background of good deals, it is some of his bad bets that still haunt him to this day. In 2015, Pershing Square Capital's fund reached a massive $20 billion. That fund has lost more than $10 billion since as investors try to take their money out of the hedge fund due to unimpressive returns.

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