Deja Vu All Over Again

Vornado has acquired a 1.2% stake in McDonald’s (check out full Bloomberg News article.)  Does anyone remember this scenario?  It was just November, 2004 when Vornado bought 4.8% of Sears leading to Sears acquisition by Kmart.  Simply put, the Sears real estate was worth more than the stores (KMart’s rebirth as Sears Holdings hasn’t changed that situation, either).  Vornado has learned how to spot these opportunities – including acting as a principal in buying Toys R Us in March to capture the value of that struggling retailer’s real estate.

While everyone knows that McDonald’s franchises most restaurant operations, did you know the company owns about 37% of the land under those stores, and 59% of the buildings?  Once again, to sharp real estate people the land and buildings look more attractive than the hamburger operations which use them.

McDonald’s reaction?  In an email McDonald’s spokesperson Anna Rozenich said that McDonald’s plans to stick to its current business strategy.  Over the last 5 years McDonald’s has struggled with flattening demand for its products, selling off most non-hamburger operations, closing stores and restructuring.  Now an external party has emerged to question the validity of the business model.  But despite all these Challenges McD has refused to Disrupt its old Success Formula and develop new value for its shareholders, employees, vendors and customers.

This is the operating definition of Lock-in.

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