Pershing Square Activist Presentation Deck
V. Developing a Response to the
Company
Based on a review of the cost of capital of Real Estate holding corporations and Intangible Property/
Franchise businesses like Coca Cola and Choice Hotels, we believe that Pro Forma McDonald's levered
FCF could have a discount rate in the area 7.25% - 7.75%. As such, we believe PF McDonald's would
have a FCF Yield of 4.25% - 5.25%. This implies a midpoint equity valuation range of $48 per share.
Estimated Discount Rate
Implied Perpetuity Growth Rate
Implied FCF Yield
Implied FCF Multiple
Valuation of McDonald's as a Growing Annuity
(1)
FY'06E Free Cash Flow per Share
(Note: FCF Assumes Proposal Scenario)
Low
7.75%
2.50%
5.25%
19.0x
$2.17
High
7.25%
3.00%
4.25%
23.5x
$2.17
Midpoint of PF
McDonald's
Equity Value per
Share(2): $48
(1) Assumes no dividend paid in FCF calculation.
(2)
Includes the value of PF McDonald's 35% equity stake in McOpCo (approx. $2 per share). Assumes a 7x EV / FY '06E EBITDA McOpCo valuation multiple.
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