JC Penney: Exit Martha Stewart and Ackman, Enter Hedge Fund Managers

Andrew Klips |

Two big names leaving the JC Penney (JCP) family have provided a modest boon to shares recently.  Granted, the news that billionaire activist hedge fund manager William Ackman dumping his entire stake in JCP sent shares lower initially, but the retailer’s shares have more than recovered since.  Two days ago, Penneys gave the boot to Martha Stewart, deciding not to carry her product line and ending an epic court battle with Macy’s (M) over licensing rights.

Ackman, who runs Pershing Square Capital Management and was Penney’s largest shareholder, announced on Monday, August 26 that he unloaded at 39.1 million shares of JCP that he owned.

Ackman had left the board of Penneys two weeks earlier, apparently tired of a contentious relationship with the directors, executives and investors about who would run the company and a strategy to turn it around.  It was Ackman who fought in 2011 to bring in Ron Johnson as chief executive of JC Penney to re-build the brand.  It was Johnson who signed a 10-year, $200 million deal with Marth Stewart Living Omnimedia (MSO) .  Johnson was ousted in April and replaced by former JCP CEO Mike Ullman.

The New York Post reported that Ullman thinks Martha Stewart designs “aren’t that great” and that “…they’re not selling, and they’re nothing that your normal Joe Schmoe can’t come up with.”

Ackman reportedly lost about $470 million on the investment, adding another retail blemish on the normally very successful hedge fund’s record.  Ackman's company had lost money in the past on investments in Target Corp. (TGT) and now-defunct Borders Group.  But, did he act to hastily or let emotions dictate his sale time?  Well, only time will tell that tale, but it seems that other money managers are glad to have him out of the picture.

Hedge fund managers George Soros, Richard Perry, Larry Robbins and Kyle Bass, who all hold large positions in Penneys, are betting that Ackman was wrong. 

Days after Ackman disclosed bailing-out of the company, Perry bought an additional 3 million shares (formerly Ackman’s shares) of the embattled retailer in a secondary offering by Citigroup (C) at $12.90 each.  Perry Capital. now owns 8.62 percent of Penneys, making it the second largest shareholder behind Soros at that time.

Perry just got bumped down the ladder a rung as Larry Robbins Glenview Capital Management has more than doubled its stake in JCP since Ackman’s exit, reporting to the Securities and Exchange Commission this week that it now owns a 9.1-percent stake, or 20.1 million shares, in Penneys.  Soros also holds a 9.1 percent stake.  On June 30, Glenview’s stake was less than 4 percent.  Shares of JCP at that time were around $17.

Kyle Bass’s Hayman Capital Management also recently boosted its holdings in JC Penney, now holding 5.2 percent, or 11.4 million shares.

There’s no doubt that JC Penney has to get back to some grass roots and re-connect with its target demographic.  That’s a lofty task to say the least, but hedge fund managers are apparently seeing some value in it at these levels.  Since hitting $12.12 last Friday, it’s lowest price in 11 years, shares have risen more than 17 percent, including printing as high as $14.59 in today’s trading.

Today on CNBC, Dallas Mavericks owner Mark Cuban said that he also jumped on the JC Penney bandwagon, purchasing one million shares of JCP last week.

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Symbol Name Price Change % Volume
TGT Target Corporation 65.79 0.59 0.90 4,235,409
M Macys Inc. 32.30 0.48 1.51 8,197,221
MSO Martha Stewart Living Omnimedia Inc. n/a n/a n/a 0
JCP J.C. Penney Company Inc. Holding Company 7.03 0.00 0.00 13,914,968
HRDI Here Media Inc n/a n/a n/a 5


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