Ackman Done With J.C. Penney, Sells Entire Stake (JCP)
Immediately following the closing bell Monday, news broke that Pershing Square Capital, the hedge fund operated by billionaire investor Bill Ackman, was liquidating its entire position in J.C. Penney (NYSE: JCP)
The hedge fund held 39 million shares representing an 18 percent stake in the $3 billion retailer. It was later revealed that Ackman sold all of his shares to Citigroup (NYSE: C) who will, in turn, sell the stock to other investors without J.C. Penney receiving any additional income from the transaction.
This represents a big loss for Pershing Square. According to Reuters, Ackman purchased the position for $20.01 per share. At J.C. Penney’s current market price, that means Ackman lost 33 percent and a whole lot of valuable time trying to unlock value in the ailing company.
But the question people are asking is, why now?
With the stock down 33 percent the risk/reward favors at least some upside. While the amount of people who believe J.C. Penney will likely file for bankruptcy continues to grow, few believe that the retailer’s doom is immanent. In fact, traders are making long bets on the stock because of the low valuation.
Ackman, however, is no longer willing to hold on. After a public battle with the J.C. Penney board, Ackman announced that he was giving up his board seat and would play nice with the board in order to enact the changes needed to save the company.
As part of his board departure, Ackman was granted the right to sell his position. This tipped off the market that he was likely to exit the investment soon.
It’s no secret that Ackman hasn’t done well investing in retailers. His position in Target (NYSE: TGT) and now bankrupt Borders Group both ended badly and now, J.C. Penney will be added to his list of retail failures. Even Ackman himself acknowledged that retail investing isn’t one of his strong suits.
In what would be his biggest move as a major shareholder in J.C. Penney, Ackman convinced Ron Johnson to leave his post as head of retail for Apple (NASDAQ: AAPL) to become CEO of J.C. Penney.
During that time, Johnson attempted to execute a huge turnaround that ended up costing the company much of its cash reserves, alienated customers, and sent the stock plummeting, The J.C. Penney board later fired Ron Johnson and brought back CEO Mike Ullman—a move Ackman didn’t like. When he was unable to convince the board to find a different CEO, he gave up his board seat.
Although Pershing Square lost hundreds of millions on the deal, it's better for Ackman, who is known for taking active roles in companies where he amasses positions, to set his sights on new opportunities. The opportunity at J.C. Penney clearly ran out.
Disclosure: At the time of this writing, Tim Parker had no position in the above mentioned stocks.
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