Bill Ackman has apparently identified his newest activist target — JC Penney. The founder of Pershing Square Capital Management said in a regulatory filing Friday that he owns slightly more than 39 million shares of common stock of the retailer, or about 16.5 percent of the total outstanding shares. This includes more than 4.1 million shares underlying call options. In addition, he has economic exposure to about 602,600 notional shares of common stock under certain cash-settled total return swaps, bringing his total economic exposure to 16.8 percent of the total shares. In the filing, Ackman made it clear he believes the stock is “undervalued and is an attractive investment.” Of course, he filed a 13-D, not a 13-G, meaning this is not intended to be a passive investment. He made it clear he “expect to engage in discussions with management, the board” and other shareholders concerning the business, assets, capitalization, financial condition, operations, governance, management, strategy and future plans of the company, which may include proposing some sort of action. This may include buying more shares or other financial instruments related to Penney, selling some or all of his holdings, or engaging in hedging or similar transactions. In the filing, Ackman also points out that Vornado Realty Trust will file a separate 13D. But, he did not add further details.
Ackman was not available for immediate comment. Penney’s stock jumped more than 6 percent, to $33.74, on the news of Ackman’s investment. In early 2008, the stock peaked at $85.25. In its most recent fiscal year ended January 31, 2010, net earnings more than halved from the prior year on a 4.8 percent drop in revenues.
Interestingly, on Thursday, Penney’s trading volume more than doubled to 30.7 million shares from slightly more than 13 million shares the day before. In fact, volume only began to pick up significantly from prior levels since September 29. The activist is known for holding just a handful of stocks and then pressing companies for certain changes. His experience in the retail industry, however, has not been that great of late. Remember, several years ago he set up a separate fund to invest in Penney’s competitor Target. But, at one point the value of the fund had dropped by nearly 90 percent.
However, shares of Target — his largest holding at the end of the second quarter-- have more than doubled since their March 2009 low. Borders Group is his other retail holding. At the end of the second quarter, he owned shares of Landrys Restaurants. Altogether, Ackman owns 10 stocks, if you count the nine he reported at the end of the second quarter plus Penney.
