Daniel Loeb’s Third Point Builds Big Stake in Yum Brands
In investor letter, he says fund has built ‘significant position,’ in part on Yum’s China business
Daniel Loeb may prefer to eat healthy foods, but he’s looking to fatten up his hedge fund with a bit of KFC.
Mr. Loeb, a yoga devotee who avoids carbohydrates and sugary beverages, said Friday his Third Point LLC has built a “significant” position in KFC, Taco Bell and Pizza Hut parent Yum Brands Inc., expressing optimism about its business in China.
In his quarterly letter to investors, Mr. Loeb disclosed the position and said he sees a “dramatic profit recovery” coming in the next two years, while also crediting management for saying the right things about shareholder value.
While he is best known for being an activist investor and shaking up companies, Mr. Loeb has taken a more friendly tone in some recent investments. He expressed faith in Yum’s management and Chief Executive Greg Creed, saying they were already on their way to taking the kinds of steps he would support.
Mr. Loeb suggested the company could franchise more of its restaurants, add debt or create “an alternative ownership structure.” Analysts have speculated that the company could spin off the Chinese operations into a separate company, a notion Mr. Creed has left on the table.
“We appreciate their confidence and investment in Yum Brands,” a company spokesman said of Third Point.
Yum shares rose 6.9%, or $5.94, to $91.90, on Friday.
China accounts for nearly half of the company’s revenue, but sales were battered following reports last year that a supplier had intentionally sold meat past its expiration date. Yum cut ties with the company, but the incident followed earlier health questions surrounding suppliers in 2012. The company last week reported that same-store sales in China fell 12% in the first quarter.
Mr. Loeb said Yum seems able to move past the problems.
“We have spent substantial time assessing Yum!’s recovery potential and examining whether its status as a ‘repeat offender’ has irreparably damaged the brand in China,” Mr. Loeb wrote. “By an overwhelming majority, local consumers believe the food at KFC is safe or at least as safe as other restaurant options.”
Mr. Loeb also disclosed a new stake in Devon Energy Corp., an energy exploration and production company that Mr. Loeb said has valuable assets.
The letter touched on Mr. Loeb’s continued interest in Japan, which now accounts for about 10% of Third Point’s investments. He said he recently traveled to Japan to meet with industrial-robot maker Fanuc Corp., which he said was taking “important steps” to reward shareholders.
That meeting itself was something of a victory for Mr. Loeb, who is urging Japanese companies to open up to shareholders. Few activists have succeeded in Japan, though Mr. Loeb is trying.
Fanuc was long known for its secrecy, but it set up a shareholder-relations department that began work in April. This week it said it would sharply increase shareholder returns by raising its dividend and buying back stock. Those are all measures that Mr. Loeb sought in a public letter in February.