By David Benoit
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 his 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 most 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 5%, to $90.45, in recent trading.
China accounts for nearly half of the company's revenue, but
sales were battered following reports last year that a supplier had
intentionally sold expired meat. 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 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.
Eric Pfanner contributed to this article.
Write to David Benoit at david.benoit@wsj.com
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