Bill Ackman had big ideas for JC Penney JCP +2.17%when he bought into the stock in 2010, but nearly two years later after a failed transformation of the retailer the hedge fund manager sold his entire stake in the department store chain for a hefty loss.
Ackman’s Pershing Square Capital Management sold 39,075,771 shares of J.C. Penney at $12.90 apiece Monday, for total proceeds of $504 million, in an offering run by Citigroup C -1.96%.
The sale ends an unsuccessful chapter in Ackman’s career as an activist investor. His initial play for the retailer came with support from ally Vornado Realty VNO -0.13% Trust, the real estate empire run by billionaire Steven Roth, who quickly gained a Penney board seat along with Ackman.
In short order, Ackman helped push the retailer to hire Apple executive Ron Johnson, who initiated his tenure with a radical plan to end sales in favor of everyday low prices. That plan alienated long-time Penney shoppers and failed to attract new consumers to replace them.
Even as Johnson’s turnaround failed to halt the company’s sliding sales figures Ackman continued to defend the strategy, particularly its “store within a store” concept. By April 2013 though, with Johnson’s strategy failing to connect and the company burning through buckets of cash, the board ousted the CEO in fav0r of former chief Mike Ullman. Over the ensuing months a boardroom power struggle put Ackman at odds with Ullman and Chairman Thomas Engibous.
A few weeks ago, that boardroom spat exploded into the public eye, with Ackman releasing letters to the board demanding a formal search for Ullman’s successor and the replacement of Engibous with former Penney CEO Allen Questrom.
That ploy failed though, and within days Ackman stepped down from the board and set in motion a plan to sell his nearly 18% stake in the retailer. Monday’s sale means that Ackman will take an almost 50% loss on his stake, mostly acquired at prices near $25.
The sale closes one chapter at J.C. Penney, but the company still faces a daunting turnaround and has been dogged by rumors about financing issues, which it has denied. Following Ackman’s board exit, the company instituted a poison pill to guard against another heavyweight investor gaining enough sway in its stock to force changes to its turnaround.
Hedge fund Perry Corp, which disclosed a 7% stake in early August, has urged the company to bring back Questrom and hire Foot Locker FL -1.36% chief Ken Hicks as CEO to speed up the company’s turnaround and regain ground lost to rivals like Macy's M -1.2%.
Citi analyst Deborah Weinswig, who has also called for J.C. Penney to bring in the “Dream Team” of Questrom and Hicks, doesn’t think the Pershing Square sale does much for company beyond removing the overhang of conflict with Ackman. For one thing, she writes in a research note, the sale of almost 20% of the company’s shares likely removes demand for any type of equity capital raise the company might have wanted to conduct, without providing any additional liquidity since all proceeds are going to Pershing.
Shares of J.C. Penney opened about 1% lower Tuesday before climbing into positive territory, up nearly 3% at $13.73.
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