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As Bill Ackman Leaves, a Hedge Fund “Dream Team” Forms for J.C. Penney
Posted by: Monica Wolfe (IP Logged)
Date: September 4, 2013 05:06PM
On Aug. 23, the polarizing guru Bill Ackman gave up his fight for change at retail company J.C. Penney. An SEC filing reported that Ackman’s fund Pershing Square sold off its entire position of 39 million shares.
The SEC prospectus reported that Pershing Square sold the rest of its 39,075,771 shares to the fund’s underwriter, Citigroup. Ackman sold its shares to Citigroup for $12.60 per share, which was less than its closing price that day of $12.76 per share. Citigroup then went on to sell those shares in a secondary offering of $12.90 per share.
Ackman was the largest shareholder of the struggling retailer’s stock, owning approximately 18% of its shares outstanding. According to GuruFocus data, Pershing Square bought these shares at an average price of about $25, which means that it lost about 50% of its initial investment, or an estimated $490 million.
Ackman finally left Penney after two years of failed attempts at turning the company around. In early August, Ackman resigned from the board after a very public clash about the company’s direction and management succession.
After Ackman's departure, several other gurus are stepping forward and buying into or increasing their stake in the Texas-based retailer.
On Sept. 3, Kyle Bass made his first buy into J.C. Penney. Bass is the Principal of Hayman Advisors, a Dallas-based fund he founded in 2006. The guru is well known and recognized based on the fortune he made in 2007 by correctly betting on the housing market collapse as well as betting against Greek and European sovereign debt.
As of the close of the second quarter, Bass kept a very concentrated portfolio of six stocks valued at approximately $38 million.
This past week the guru brought that total up to seven stocks. Bass bought into the struggling retailer by purchasing a very notable 11,428,450 shares of the company’s stock. His newest position represents a 5.2% stake in the company and a 379.17% impact to his portfolio.
According to the SEC release, Bass bought his new holding at an average price of $12.72 per share. Since his buy the price per share hasn’t changed.
Alongside Bass, the New York-based hedge fund, Glenview Capital Management, swooped in and has taken over the position as largest shareholder of J.C. Penney stock. The fund bought a total of 20.1 million shares, which is up from the 8.4 million shares they held as of June 30. Glenview Capital’s most recent increase gives the hedge fund a 9.1% stake in the struggling retailer.
Glenview Capital is lead by Guru Larry Robbins who is known to take a more activist approach to some of his larger bets. Robbins, who manages over $6 billion, has been rather successful recently. His Glenview Capital hedge fund, which maintains $4 billion under management, has been one of the top performing hedge funds over the past couple of years.
According to the SEC filing Robbins appears to have doubled his J.C. Penney stake just before Ackman publicly exited his position.
Robbins bought these shares at an average price of $13.20 per share. Since then the price per share has dropped approximately -4%. Robbins now holds 20,060,830 shares of J.C. Penney.
Robbins’ holding history as of the second quarter:
As of his most recent buy, Glenview Capital and George Soros’ Soros Fund Management are now the two biggest shareholders.
Richard Perry is the founder and president of Perry Capital which he founded in 1998. The firm primarily provides its services to pooled investment vehicles. It also manages accounts for corporations. Perry Capital invests in public equity, debt, real estate and hedging markets primarily in the U.S.
As of the second quarter Perry’s fund held 26 stocks valued at over $3.9 billion.
Perry Capital announced that it had bought an additional 3 million shares of J.C. Penney in a secondary offering for $12.90 per share. This buy gives the hedge fund an 8.65% stake in the company.
The announcement of the buy came four days after Bill Ackman retreated from the company. As Pershing Square left their position, they handed it to Citigroup who then offered those shares in the secondary market at $12.90 where Perry bought his shares.
Perry made his first buy into J.C. Penney during the second quarter when he bought 12 million shares. He bought these shares at an estimated average quarterly price of $16.83. Since then the price has plummeted an additional -25.8%.
Perry’s holding history as of the second quarter:
Perry, who also owns Barney’s New York, has been pressuring for J.C. Penney to replace its current CEO Mike Ullman and with current Foot Locker CEO Ken Hicks.
“We believe that immediately appointing Allen Questrom chairman of the board and Ken Hicks CEO is imperative at this juncture, and we anticipate that the company’s various constituents would be highly supportive of such a change,” Perry said in the one-page letter sent to the board of the Plano, Texas-based company.
J.C. Penney (JCP)
J.C. Penney is one of the nation’s largest apparel and home furnishing retailers. According to its website, the company is undergoing a resurgence to become America’s preferred retail destination for unmatched style, quality and value.
J.C. Penney’s historical price, revenue and net income:
On Aug. 22, Penney’s board of directors adopted a new stockholder rights plan which protects against any potential takeover techniques.
On Aug. 20, J.C. Penney reported its second quarter results, which were dismal:
· Net sales of $2.66 billion, compared to $3.02 billion last year.
· Comparable store sales declined 11.9%.
· Net loss of $586 million, or $2.66 per share.
· Gross margin was 29.6% of sales, compared to 33.2% last year.
Interim CEO Mike Ullman said of the second quarter results:
Since I returned to jcpenney four months ago, we have moved quickly to stabilize our business—both financially and operationally—and we have made meaningful progress in important areas of business. There are no quick fixes to correct the errors of the past. That said, we have identified the challenges, put solid plans into place to address them and have experienced and capable people in key roles to do so.
The bleak earnings contributed to the exiting of Bill Ackman several days later.
J.C. Penney has a market cap of $3.02 billion. Its shares are currently trading at around $13.68 with a P/S ratio of 0.20 and a P/B ratio of 1.00.
J.C. Penney’s Top Guru Shareholders:
· Larry Robbins with 20,060,830 shares, representing 9.1% of the company’s shares outstanding.
· George Soros with 19,986,361 shares, representing 9.09% of the company’s shares outstanding.
· Richard Perry with 19,000,000 shares, representing 8.65% of the company’s shares outstanding.
· Kyle Bass with 11,428,450 shares, representing 5.2% of the company’s shares outstanding.
· Murray Stahl with 1,357,364 shares, representing 0.62% of the company’s shares outstanding.
Now with George Soros, Richard Perry, Larry Robbins and Kyle Bass all holding significant stakes in J.C. Penney, nearly a third of the company’s shares outstanding are held by rather vocal hedge fund managers. We’ll see how and what the “Hedge Fund Dream Team” can do for the dwindling retailer.
You can check out the gurus’ second quarter portfolio holdings by checking out their current holdings page here.
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Guru Discussed: Bill Ackman: Current Portfolio, Stock Picks
Stocks Discussed: JCP,