Published On: Wed, Aug 28th, 2013

Bill Ackman waves the white flag at JC Penney

BILL ACKMAN screen shot

Bill Ackman / Getty

/ By  Stanley Green /

Ackman, who last week announced that he will be giving up his seat on the board of the retail chain, has taken the inevitable next step by announcing that the hedge fund controls, Pershing Square will be selling their 17.7 per cent stake in JC Penney.

Bill Ackman’s disastrous three year affair with JCPenney looks like shortly drawing to a close, with estimates of around stating that Pershing Square, currently the largest shareholder in the department store chain, will have made a loss of around 40 per cent on his original investment of around $850 million.

According to industry sources Ackman plans to sell his 17.7 per cent stake in JC Penney’s through Citigroup, the New York based multinational financial services corporation.

The Pershing Square Group holds 39 million shares in the company, with shares currently valued at around $13.10. At today’s values Ackman will have made a loss on his original investment of around $335 million. However he, and his investors, will hope that the shares will make some form or recovery, depending on how and at which level of intensity Citigroup manages to sell of the shares.

To his credit, in a letter sent to investors earlier this month, Bill Ackman acknowledged that his JC Penney investment had been a “failure”.  A revelation that may not have been surprising to many of his investors.

Most of the blame for the dramatic downturn in sales and profitability in JCPenney fell upon the not so broad shoulders of Ron Johnson who Ackman headhunted from Apple to pep up the image of the department store group which he claimed had been stagnating for years, to the detriment of its sales and profits.

Johnson’s approach to marketing failed to produce any form of positive result for JCPenney, in fact generating an atmosphere that was  sufficient to alienate the stores’ loyal client base, consequently leading to a dramatic downturn in sales.

Whilst accepting that Johnson’s hiring, in a classic understatement, had failed to produce the desired results, in his letter to shareholders Ackman did somewhat  forcibly point out that the decision to hire Ron Johnson had been with the unanimous approval of all of the JC Penney directors.

JC Penney to operate more than 1, 000 stores, most of them situated in regional malls, do not stand to enjoy any immediate benefits of  Ackman’s share selloff, with Citygroup have agreed to purchase the shares from Pershing Square capital and ease them intermittently into the market in order to not further dilute the value of the shares.

With the “Johnston effect” still being strongly felt at JC Penney, the company reported yet another disappointing quarter, with increasing losses and dropping sales.

Like-for-like sales for the group dropped by 11.9 per cent from the same three month quarter until the end of July of last year, making for a net loss of $586 million.

This despite the fact that Myron Ullman, who was reinstated to the post of general manager of the group after being sacked to bring in Ron Johnson stating that he had made “meaningful progress” in putting the department store group back on their feet, while going on to point out, possibly with a touch of irony, that there are no quick fixes to correct the errors of the past.


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