AUDIENCE MEMBER 00:09
In your description of McDonald’s, you have a sense that there’s a great business buried in McDonald’s and two good businesses that are mixed in with it. And the problem is with the real estate and the operational business, that as the company is currently capitalized, they can’t earn the same kind of returns they can earn in the franchising business.
You were, or still are, a significant shareholder of McDonald’s. I guess my question is, the solution is obvious: why don’t you push for a solution that creates the same opportunity to have at International Dairy Queen?
WARREN BUFFETT 00:44
Well, my guess is — I don’t know the details on it — but my guess is that with 23,000 locations all over the world, I think it would be extraordinarily difficult to separate the real estate business out from the franchising business at this point.
I think they could’ve gone a different route. I’m not saying it would’ve been a better route at all. In fact, I think the odds are they followed the right route in owning and controlling so much real estate.
But I just think the problems would be horrendous. Certainly you wouldn’t want to sell it and lease it back because you would not end up with more value, in my view, by doing that.
And spinning it off in a real estate trust or something, with operating in 100-plus countries, and with all of the franchise arrangements, I think it would be a huge, huge problem. I would not want to tackle it myself.
So I think that you should look at McDonald’s — and I don’t know anything about their plans on this — but I think you should look at McDonald’s as being a very good business, but one that will continue in its present mode vis a vis the real estate. Although I think they’ve signaled that they’re going to do less on new properties — somewhat less — in connection with ownership, than they’ve done to this point.
But there’s 23,000 locations out there and every operator, his own arrangement is very important to him. And it just — it would be a mammoth job, and I’m not sure how much extra value would be created in the end anyway. Charlie?
CHARLIE MUNGER 02:18
Yeah, the net returns on capital McDonald’s has earned all these years are high, even though they have owned a lot of their real estate. I think it’s hard to quarrel with the way they did it. They had the best record.
WARREN BUFFETT 02:35
And the multiple is not greatly different, in my view, than if the real estate were separate. You know, I mean, if you get all the real estate detached in some arrangement, you might get a little more out of it.
But it doesn’t strike me as a big deal. Area 8.
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