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Business

Bill Ackman has another turnaround on his plate at Chipotle

By
Lisa Fickenscher and
Carleton English
Published Nov. 29, 2017
Updated Nov. 29, 2017, 4:59 p.m. ET

Bill Ackman just knocked off another CEO at Chipotle, but he still has a big, unfinished turnaround sitting on his plate.

The activist investor’s hedge fund, Pershing Square Capital, cheered on Wednesday as Chipotle’s chief executive Steve Ells announced he was stepping down from the helm of the beleaguered burrito chain.

“We fully support Steve’s decision,” Pershing Square said in a statement. “We remain excited as ever about the future of the company.”

Pershing Square reps kept mum about Ackman’s role in the ouster of Ells, who co-founded the chain in the early 90s but lately has failed to stem slouching sales amid a slew of food-safety scares.

Nevertheless, “It’s clear that Ells faced a lot of internal pressure,” said Mizuho analyst Jeremy Scott, adding, “It’s very telling that the search committee is two recent board appointees that were pushed for by Ackman.”

The Harvard-groomed hedgie’s fund — which has been hobbled by a disastrous investment in pharmaceutical giant Valeant and a short bet on Herbalife that backfired — has watched its 10-percent stake in Chipotle tank by more than 25 percent, shrinking by more than $300 million since Ackman disclosed it in September 2016.

“We realized prior to making our initial investment that this could be a volatile ride,” said an analyst of Ackman’s Pershing Square during an earnings call last month. “And this has certainly proven to be the case.”

Earlier this month, Ackman called Ells “an outstanding visionary CEO who’s has done a great job building the concept, the brand” — leaving others to complete the thought that Ells has failed to lead the company out of its latest messes.

Ells was Chipotle’s CEO from 1993 until 2009, when he started sharing the role with Monty Moran, who was ousted a year ago, shortly after Ackman disclosed his stake. Ells, who once owned about 6 percent of the company, now has less than a 1 percent stake.

A new CEO might have to work full-time in Denver, unlike Ells who has a residence in Manhattan along with his top marketing deputy, Mark Crumpacker, who was busted last year for cocaine possession in New York and welcomed back to the company after a three month leave of absence. Chipotle’s marketing department and product development team is in New York.

Chipotle’s critics have partly blamed the company’s bi-coastal headquarters for its failure to jump-start a recovery.

“The headquarters issue was flagged by a number of investors even before the E.coli issues,” said Scott.

The new CEO will also likely be paid a salary commensurate with Chipotle’s performance, unlike Ells who last year was given $15.7 million including salary and stock and option awards.

“There would be a realignment of the performance pay,” said Scott. “Ells’ stock package is one of the highest on the Street.”

Ells said the move will help him focus on bringing innovation to Chipotle’s sourcing and food preparation, and that Chipotle could capitalize on opportunities, including in menu innovation, delivery, catering, and domestic and international expansion.

Chipotle shares rose 5.6 percent to $301.99.