Bill Ackman Just Bought a Huge Stake in Chipotle

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Chipotle Mexican Grill (CMG) has a potentially big new problem on its hands: Activist investor William Ackman said in a filing on Tuesday that his firm has taken a big stake in the burrito chain and plans to talk to management about its poor stock performance.

In a filing with the U.S. Securities and Exchange Commission, Ackman’s Pershing Square Capital Management disclosed it has bought 9.9% of Chipotle’s shares and would to enter into discussions with the chain’s top management.

Chipotle “has a strong brand, differentiated offering, enormous growth opportunity, and visionary leadership,” Pershing said. The hedge fund added: Chipotle’s stock is “undervalued and is an attractive investment.”

Chipotle shares closed at $414.07, or 45.3% below a 52-week high. They rose 5.5% in after-hours trading.

“We welcome their investment, and appreciate the confidence they’ve expressed in our brand, differentiated offering, visionary leadership and strong growth opportunities,” a Chipotle spokesman said in an email statement to Fortune.

The once high-flying company has been devastated by a series of food safety disasters, notably an E.Coli outbreak, that occurred in late 2015 and have continued to be a drag on sales and profit at the fast-casual chain that had developed legions of fans attracted to how it prepares its foods and allows customers to customize their meals.

In its most recent quarter, Chipotle’s comparable sales, a metric that strips out the impact of newly closed or opened Chipotle restaurants, fell 23.6%, the third straight decline. It was a deeper drop than expected as diners remained reluctant to eat there. Its profit fell 82%, hurt in part by all the promotions like millions of free burritos aimed at getting customers back.

A fight with Ackman could be bruising. The billionaire investor typically takes a large stake in a company and moves to shakeup management and change business models. While he’s had a few major successes like an investment in mall operator General Growth a few years ago, he’s also had colossal failings, notable at retailers like Borders and J.C. Penney (JCP), which almost went bankrupt three years ago after implementing changes Ackman wanted, including replacing top management.

More recently, Ackman overall performance has less than stellar, in part because he’s lost hundreds of millions on a bet that supplements direct-seller Herbalife (HLF) was a pyramid scheme. Investors have been pulling money out of his fund this year.

Ackman has been also been bedeviled in the past year by Valeant Pharmaceuticals (VRX), the troubled drug company that has been under investigation for aggressive price increases, it’s accounting, and an odd relationship with specialty pharmacy company Philidor, which Valeant secretly controlled. But recent changes at Valeant, including those pushed through by Ackman, appear to be instilling new confidence in the drug maker. Shares of Valeant have recently been rebounding, helping to boost Ackman’s portfolios nearly 6% in August.

Still, Pershing Square Holdings was down 14.3% in 2016 so far, a source told Reuters.

Ironically, it’s possible that Ackman’s foibles with Valeant are what eventually led him to investing in Chipotle, at least indirectly.

Back on April 22, 2014, when Ackman announced a partnership with then Valeant CEO Michael Pearson to bid for drug company Allergan, the hedge fund manager said that one day when he was at Valeant’s New Jersey office, working on the presentation, he didn’t like the chicken and salad lunch that was on offer. But the office had a Chipotle around the corner. So Ackman requested a burrito. “They had a Chipotle around the corner and I actually asked if I could get a Chipotle burrito and Mike’s assistant very nicely got me one,” Ackman said. “And then Mike walked into the conference room and asked me for twenty bucks.”

Hopefully, Ackman got a better deal on Chipotle’s shares.

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