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McDonald's Plans Unit IPO

It will sell part of Chipotle through a public offering.
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Updated from 3:09 p.m. EDT

Under pressure to keep its share price aloft,



unveiled a series of shareholder-friendly measures Wednesday including a higher dividend, an expanded stock buyback and the partial sale of its Mexican food chain.

Shares briefly ticked higher on the news but remain down for the day, caught in the Hurricane Rita downdraft. After rising almost 3% on Friday, McDonald's shares have spent this week edging lower. They were recently down $1.18 to $31.44.

At an analyst meeting in its hometown of Oak Brook, Ill., McDonald's said it will raise its annual dividend 22% to 67 cents, to be paid Dec. 1 to stock of record as of Nov. 15. The dividend represents an $825 million annual outlay, part of what the company vows will be $5 billion to $6 billion returned to shareholders through dividends and buybacks through 2006.

McDonald's also said it will sell a minority interest in Chipotle Mexican Grill through an initial offering during the first quarter of 2006. "This action will optimize Chipotle's potential and create additional value for McDonald's shareholders," the company said.

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The steps are similar to actions announced over the summer by rival



after activist hedge funds including Pershing Square Capital took minority stakes in the burger chain and started pushing for changes.

According to wire reports, Pershing Square acquired a 4.9% stake in McDonald's over the past few months. The news whetted the appetite of McDonald's investors who saw their shares double between spring of 2003 and spring of 2004. The stock is up about 20% over the last 12 months.

In August, same-store sales rose 3.8% at McDonald's from a year earlier. While positive, the rate was down from the 6.9% gain recorded in August of 2004.

"We recognize that producing comparable sales growth on top of record breaking sales is a challenge for any business. The good news for McDonald's shareholders is we are absolutely delivering on our plan. We have strategies in place to continue to build momentum and provide customers with an even more outstanding restaurant experience that will support future growth," the company said Wednesday.

Jack Russo, an analyst with A.G. Edwards, said McDonald's plans would be welcome news on Wall Street, but the stock was responding negatively to threats to the economy posed by hurricanes along the Gulf Coast and rising gas prices.

"There are a lot of factors weighing down on all of retail right now," Russo said. "This news is certainly better than we expected to hear today. A Chipotle IPO would get a warm reception in the stock market. It's a good brand that is showing very good numbers."