Pershing Turns Up McDonald's Heat

Currently, retail REITs' median multiples range between 12.3 to 12.7 times 2006 fund from operations, a key REIT profit metric, according to SNL Financial. Simon Property Group(SPG Quote), the largest mall owner in America, is currently trading at 14 times its 2006 estimated FFO. The median multiple for REITs with net-leases (like McDonald's has) is 12.5 times 2006 earnings.

Ackman's proposal is sure to heat up discussion about valuation among intelligent investors.

Leon Cooperman, senior partner with Omega Advisors, which owns $100 million of direct stock in McDonald's, told TheStreet.com after Ackman's presentation that he'd review Ackman's proposal and "if I agree with his conclusions, I will support him."

"I think really it's up to McDonald's now to come forth and tell us why they disagree with his proposal," Cooperman said. "I suspect that many large mutual funds have an obligation to basically represent their investors in the most intelligent way possible. We're in a different world now. We're in a world of intelligent activists, not unintelligent. This man (Ackman) has done serious work and he is to be respected."

Ackman says he won't back down. "I'm the most persistent person you'll ever meet," he said, especially when he feels he's right. He doesn't think the matter has to go to the extreme of a proxy battle -- but he didn't exactly rule out a proxy battle in the event that management stonewalls him. He added that his McDonald's stake, which is mostly controlled through options, is the largest investment in a company that he's ever made.

He also said he looked at a proposal to convert McDonald's into a real estate investment trust, or REIT, but doesn't favor that strategy since it brings significant costs and complications, especially regarding McDonald's international real estate. Ackman said he hasn't been working with Vornado Realty Trust(VNO Quote), a major REIT that disclosed a 1% stake in McDonald's earlier this month. Vornado appears to favor some sort of REIT conversion for McDonald's.