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Big hedge funds shopped at J.C. Penney in third quarter

Customers ride the escalator at a J.C. Penney store in New York August 14, 2013. REUTERS/Brendan McDermid

By Svea Herbst-Bayliss

BOSTON (Reuters) - Retailer J.C. Penney drew three prominent new institutional shoppers during the third quarter, while a fourth investor significantly increased its stake, even as an ambitious overhaul fizzled and its stock price dropped.

Hedge funds Highfields Capital, Jana Partners and Farallon Capital Management Group took positions in the ailing department store operator, and Glenview Capital, already a big owner, added to its holdings.

Jonathon Jacobson's Highfields Capital bought 3.2 million shares, and Barry Rosenstein's Jana Partners and Farallon, founded by Tom Steyer, each bought 500,000 shares in the Plano, Texas-based company during the quarter, regulatory filings made with the Securities and Exchange Commission on Thursday show. Larry Robbins' Glenview bought 3.9 million shares to own 12.4 million at the end of the quarter.

George Soros, whose investment decisions have long been followed closely, kept his holdings unchanged at 19.98 million shares.

Two one-time backers of the company had second thoughts, however. Richard Perry's Perry Capital sold 2 million shares, leaving him with 10 million shares at the end of the quarter. And Tiger Consumer Management liquidated its entire position, 5.43 million shares.

Additionally Fidelity Investments said its funds sold 3 million shares, cutting the firm's stake in J.C. Penney by 66 percent. The company does not break out which funds own the stakes but said it still had 1.5 million shares at the end of the quarter.

In April, the company in April parted ways with Chief Executive Ron Johnson, who after 17 months on the job failed to win over shoppers and investors with his everyday-low-price strategy, and rehired former CEO Mike Ullman to revive the company. Johnson was known for his previous success as chief of Apple Inc's retail unit.

While Jana Partners' and Farallon's stakes make up only a small amount of the total holdings at each fund - 0.05 percent at Jana Partners and 0.09 percent at Farallon - the news is being widely followed because J.C. Penney, more than many other stocks, had become a battle ground for the world's biggest hedge funds.

William Ackman's Pershing Square Capital Management waged a long but largely unsuccessful campaign to revive the retailer and had expected its share price to go up. But plenty of other hedge funds were betting against a turnaround and shorting the stock for months.

The battle over the retailer came to a head in August and September when Ackman, J.C. Penney's biggest shareholder, stepped off the company's board and in one fell swoop sold his entire 17.78 percent stake of 39 million shares at the end of August, incurring a loss of roughly $500 million.

Then the company said it would raise fresh capital, an about-face after Ullman said he didn't see the need for fresh money for the rest of the year, further shaking sentiment. During the third quarter the share price plunged 48 percent.

The regulatory filings, which are required of money managers whose investment firms oversee more than $100 million in assets, do not say when Highfields, Jana or Farallon bought the shares, stating only that they held them on September 30. The filings are required to made 45 days after the end of the quarter.

The retailer's shares closed at $8.69 on Thursday afternoon, roughly flat from the end of the quarter, falling in early October and then recovering in subsequent weeks.

J.C. Penney found freshly committed backers in late August when Ackman cashed out.

Perry's Perry Capital and Soros' Soros Fund Management were among the investors purchasing shares that Ackman sold, sources familiar with the trades said.

(Reporting by Svea Herbst-Bayliss; Editing by Steve Orlofsky)