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 $600m, resulted in the loss of thousands of jobs and left the 1,100-store chain still struggling to right itself, Reuters reported on Tuesday.
Ackman’s Pershing Square Capital Management LP is unloading its 39 million shares — nearly 18 per cent 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.
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 Incorporated 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 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 Corporation in 2009.In a letter to Pershing Square investors last week, Ackman conceded those “mistakes,” and said he would consider selling his stake in Penney.
“Clearly, retail has not been our strong suit, and this is duly noted,” he wrote. Ackman’s exit leaves Penney still facing the uphill job of winning shoppers back to its stores and recovering from a deep drop in sales.
Johnson’s strategy of eliminating discounts and doing away with popular house brands without first testing those ideas led to a 25 per cent drop in Penney’s sales and a loss of nearly $1bn in his first full year on the job.
Those losses took a toll on the company’s workforce.
Penney, which had provided at least 150,000 people with full- or part-time work for almost a decade, had just 116,000 employees when its most recent fiscal year ended February 2.
Retailers fight hard for every point of sales growth, and a drop of Penney’s magnitude won’t be easy to fix, according to industry executives.
Moreover, the chain’s sales have continued to decline.The retailer said last week that its sales at stores open at least a year sank by 12 per cent in the quarter ended August 3, as shoppers gave its new home departments a poor reception.
The company posted a loss of $586m for the period.”To bet the ranch on some kind of wild return to growth in a short time period wouldn’t be prudent,” Ullman, the CEO, said on a conference call to discuss earnings last week.
Soon after his resignation from the board, Ackman and Penney agreed on a framework under which he could sell his stock.
The terms allowed Pershing Square to make up to four large sales a year, as long as each exceeded five million shares.
Ackman also won the right to appoint a person to serve on Penney’s board in his place. But with the sale of his entire stake, he will forfeit that right, people familiar with the situation said.
Pershing Square, which has about $11.7bnof assets under management, is selling its stock through a deal with Citigroup, which agreed to buy the entire stake and then marketed the shares to fund managers late Monday, according to a filing.Unclear is whether another dissident Penney director, Steven Roth, chairman of Vornado Realty Trust, plans to remain on the board or sell his company’s remaining shares.Vornado sharply reduced its stake in Penney in March, selling stock valued at $160m.
On Monday, Roth didn’t respond to a request for comment.Penney’s board, having seen off one activist, adopted a shareholder rights plan last week intended to prevent new investors from gaining control of the company.
The rights plan, also known as a poison pill, is designed to dilute the value of the stock by potentially flooding the market with additional shares, making it expensive for an investor to acquire a controlling stake.The company adopted the plan as other investors built big stakes in the stock.
They include George Soros, who now controls the second-largest stake in the company–9.1 per cent–through his Soros Fund Management LLC. Meanwhile, hedge fund Perry Capital LLC has taken a 7.3 per cent stake.