McDonald's: Worth More than the Sum of Its Parts?

A basic Happy Meal at McDonald's sells for an average of $2.59. But if you price the hamburger, French fries and soft drink separately, they're worth more.

Likewise, a New York hedge fund manager thinks McDonald's would be worth more if the company were split into separate parts. But the reorganization he's proposed doesn't make the fast food chain very happy.

Hedge fund manager William Ackman says the world's largest fast food chain makes most of its money collecting royalties from independent franchisees -- a hugely profitable business. But while the company's stock has gained in the last three years, it's well below where it was a decade ago.

Ackman says the stock market doesn't fully appreciate the value of the McDonald's brand, because it's weighed down by the less-profitable business of running company-owned restaurants.

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"Sometimes when you mix a fabulous business with a more mundane one, the market values it as a more mundane business," Ackman says. "And literally just separating the two enables the market to understand the values."

Ackman wants McDonald's to spin off some 8,000 company-owned restaurants into a separate company, 20 percent of which would then be sold to the public. He says company-owned restaurants typically haven't performed as well as franchised locations. He thinks a split would help light a fire under those restaurants, about a thousand of which he would sell to more successful franchisees.

"Twenty-seven percent of the McDonald's system is operated by the parent company. If we can make that 27 percent operate more entrepreneurially, that increases I think the overall success of the whole system," Ackman says.

Ackman's proposal is a scaled-down version of a pitch he made unsuccessfully last fall. Before offering the revised plan, Ackman says he consulted with investors and franchisees. He even spent some time over the holidays working in a McDonald's kitchen.

McDonald's said in a statement that it respects Ackman's passion for the company. And it can hardly ignore him, since his hedge fund owns about 4.5 percent of the chain.

But McDonald's says there are better and simpler ways to boost value than spinning off restaurants. The company says it's already pursuing those, which is why sales jumped in December for the 32rd month in a row.

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