Ackman calls Penney bet a 'failure,' mum on plans

After leaving Penney board, Ackman calls his bet on retailer a 'failure,' mum on future plans

Associated Press

NEW YORK (AP) -- A week after he resigned from J.C. Penney's board, activist investor William Ackman admitted in a letter to investors that the investment was a "failure" and that retail "has not been our strong suit."

Ackman's Pershing Square Capital Management invests in and bets against a wide range of businesses, including McDonald's Corp., insurance company MBIA Inc. and Canadian Pacific Railway Ltd. But he's been particularly vocal about his dealings with Penney lately as the department store struggles to turn around its business.

Ackman resigned from J.C. Penney's board on Aug. 13 as part of a deal to resolve an unusually public battle between the two parties. A week ago the pair hammered out an agreement that sets the terms for Ackman to unload his J.C. Penney stake in an orderly manner.

Pershing Square is J.C. Penney's biggest investor, with a 17.7 percent stake. He pushed for the company to hire former Apple executive Ron Johnson as CEO. But Johnson's changes led to a collapse in sales and the stock price, and he was ousted earlier this year.

In the letter to investors dated Tuesday, Ackman it was "difficult to determine" how long a sales recovery might take.

Indeed, J.C. Penney may have a long road ahead. On Tuesday the Plano, Texas-based chain reported its sixth straight quarter of big losses and steep revenue drops. But there were some encouraging signs: Revenue improved from month-to-month during the second quarter, and the decline in its online business slowed significantly.

Ackman did not hint further what he plans to do with Pershing's stake in the retailer. The executive recalled how it took more than 19 months before Pershing sold off its stake in Target Corp. after a failed proxy contest in 2009. Ackman also named the Target investment one of Pershing's retail investment failures in his letter Tuesday.

"We may choose to exit J.C. Penney after more or less time depending on the developments at the company, the stock price and the availability of other investment opportunities," he said.

Ackman initially purchased a stake in J.C. Penney in 2010.

The third investment in a retailer deemed a failure in the letter was his bet on Borders, the bookseller that went bankrupt in 2011.

Ackman is also engaged in a public feud with rival investor Carl Icahn over Herbalife, which he describes as a pyramid scheme. He's betting against Herbalife Ltd., and the nutritional supplements distributor's stock has nearly doubled this year.

"We have a substantial mark-to-market loss on this position," Ackman wrote. "We do not, however, consider Herbalife to be a failed investment despite these losses." He said that he still thinks the company's stock price will decline because of a heightened chance for intervention by U.S. regulators.

Pershing Square's fund overall was flat in the second quarter, compared with a 2 percent gain by the Standard & Poor's 500 index.

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