New York—After a controversial and often contentious tenure as JCPenney’s largest shareholder and member of its board of directors, William Ackman, activist investor behind Pershing Square Capital Management, has sold his stake in the retailer.
According to documents filed Monday in a regulatory filing with the Securities & Exchange Commission (SEC) and in statements from Pershing Square, the hedge fund sold all 39.1 million of its JCPenney shares to Citigroup, which will be offering them for sale at $12.90 a share. (Shares closed about 3% higher on Monday at $13.35 a closing price.) The deal is expected to close August 30.
When Ackman began buying up shares of JCPenney in October 2010, the shares were priced about $25. That was before Ackman and his fellow investor Vornardo Realty Trust demanded seats on JCPenney’s board and say-so in the retailer’s “transformation.” He supported and helped hire Ron Johnson as chief executive, who during its tenure dumped longtime private label brands, reconfigured selling floors into a shops-in-shop concept and eliminated coupon discounts.
Ackman also supported Johnson’s ouster in April and the re-installation of Myron “Mike” Ullman as interim chief executive. And when JCPenney’s board didn’t appear to be moving fast enough on finding a full-time replacement for Ullman, Ackman took them to task, demanding resignation of Board Chairman Thomas Engibous in an unusually public fight over the company’s leadership.
Exit ‘Potentially Positive’ for JCPenney
Stung by his defeats and the board’s continued support of Ullman, Ackman resigned the board a couple of weeks ago and arranged an exit strategy with JCPenney. Ackman’s stake in JCPenney is expected to bring in about $504.4 million, an estimated loss on his investment of about $473 million.
The sale comes just a week after JCPenney reported its ninth consecutive drop in quarterly sales and a loss of $586 million. Last year, the department store’s sales slipped 25% and its share prices have fallen 32% since January.
“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,” Erik Gordon, a law and business professor at the University of Michigan, told Reuters.
While the impact of Pershing’s sale is a matter of disagreement among analysts, most see it as a positive.
Oppenheimer analysts, for instance, wrote today: “Longer term we view the decision of Pershing Square to part ways with JCPenney as potentially positive for the chain, as it will allow the company’s management and board to focus on fixing the ailing retailer in a more cohesive fashion.”
“J.C. Penney showed some progress in its recent earnings, but it still hasn’t proved it can pull of a turnaround,” said Will Frohnhoefer, analyst at BTIG. “Investors will now be laser-focused on sales, the broader trends in retail and any new material information for JCPenney.”
In preparation for the sale—and to possibly prevent another activist investor from taking hold—JCPenney’s board last week adopted a year-long “poison pill” plan to hinder any takeover attempts by limiting a single investor’s stake to 10%.
While Ackman apparently wanted to cut his losses by selling the stake, other investors are banking on JCPenney’s successful turnaround. Billionaire investor George Soros’ fund took a 9% stake and Perry Capital has a 7.3% stake. And in the last week, reports circulated that Hayman Capital, a firm run by J. Kyle Bass, bought up shares and made a bullish bet on the retailer’s debt.
But as this chapter of JCPenney’s struggle ends, the comments by Brian Sozzi, chief executive and chief equities strategist at Belus Capital Advisors noted: “Ackman officially exits stage left, having brought an American retailing icon to its knees. In the grand scheme of things, that’s sad.”