Activist hedge fund manager William Ackman is getting rid of his J.C. Penney stake after resigning from the company’s board. It wasn’t one of his smartest investments.
Here’s the story from the Wall Street Journal.
Hedge-fund manager Bill Ackman moved to dump his entire stake in J.C. Penney Co., ending a failed bet on the retailer that cost his fund more than $600 million, resulted in the loss of thousands of jobs and left the 1,100-store chain still struggling to right itself.
Mr. Ackman’s Pershing Square Capital Management LP is unloading its 39 million shares—nearly 18% of Penney’s stock—with help from Citigroup Inc., which underwrote the sale.
Citigroup reached agreements to sell the shares to new buyers at $12.90 each, a person familiar with the matter said. That was well below their closing price Monday of $13.35 and close to half the roughly $25 apiece that Pershing Square paid for the shares, mostly in 2010 and 2011.
Mr. Ackman resigned from Penney’s board earlier this month after a conflict with fellow directors over the choice of a chief executive spilled out into the open. He had become a divisive figure at the company by backing the appointment of Apple Inc. retail executive Ron Johnson as CEO and supporting a strategy that ended up pushing the retailer deep into the red by the time it removed Mr. Johnson in April and brought back his predecessor Myron Ullman.
It was the hedge-fund manager’s third bad bet on the retail industry, following an investment in the now-defunct bookseller Borders Group in 2006 and a proxy-fight defeat at Target Corp. in 2009.
The New York Times wrote that Ackman’s bet on former Apple retailer Ron Johnson was “disastrous” for the retailer as he fumbled to find a formula that resonated with customers:
The stock sale came six days after the retailer announced its latest quarterly earnings. Under an agreement with Penney’s board, Mr. Ackman could not begin disposing of his stake until then because he still possessed some material information about the company’s finances.
By selling his stake, Mr. Ackman will wash his hands of a drawn-out and ultimately disappointing investment in Penney. He first emerged as a big investor three years ago, believing that the retailer could be turned around with new management. To that end, he enlisted Ron Johnson, the celebrated architect of Apple’s retail strategy.
But Mr. Johnson’s tenure proved to be disastrous, with numerous initiatives — eliminating discount sales, a costly renovation of Penney’s stores — serving only to drive away existing customers while failing to bring in new ones. Earlier this year, the board fired Mr. Johnson and brought in his predecessor, Myron E. Ullman III, on an interim basis.
Earlier this summer, Mr. Ackman again grew anxious that Penney was on the wrong track, fretting about executive appointments by Mr. Ullman that the hedge fund manager believed did not follow established procedures. Concerned that the board was becoming fractured, he later publicly called for the replacement of its chairman, Thomas J. Engibous, with Allen I. Questrom, a former Penney chief.
The two sides negotiated a truce: Mr. Ackman would step down, while Ronald W. Tysoe, a longtime retailing executive, would join the board, with another new director to follow soon.
The truce wasn’t good enough for investors, Reuters reported. Several institutional managers requested meetings to gain some clarity about his strategy:
For Ackman’s hedge fund, which had boasted average annual returns of 20 percent over the last decade, the Penney investment weighed on performance, prompting some institutional investors to seek meetings with the manager so he could clarify his plans.
Ackman has lost hundreds of millions of dollars on his bet since first buying the shares when they traded at $20.01.
Last week, Ackman acknowledged that retail investing has not been his strong suit and categorized the J.C. Penney investment as one of his fund’s three “failures” along with failed bets on Borders Group and Target Corp.
In order to get out quickly, Ackman relied on Citigroup to buy the entire stake in a so-called “block trade” and to then sell it to other investors. Currently hedge fund managers including George Soros and Richard Perry already have large stakes in J.C. Penney. It was unclear who might be buying the stake that Ackman’s funds sold.
“Ackman bought his stake in order to influence the board to make big changes, not as a passive investment. Now it makes no sense to hold the position. It’s time to move on to another company,” said Erik Gordon, a law and business professor at the University of Michigan.
I’m sure that some of his investors will have questions as to what company he’ll look at next. Seems that the retail space hasn’t been too kind to him lately, so maybe it’s time to pick another sector. Either way, this is a small setback for one of the most successful hedge fund managers and isn’t likely to hurt long-term returns.
