William Ackman isn't the type of investor to put a lot of money into a company and let management continue to do its thing. The manager of the Pershing Square Capital Management hedge fund is known for putting dollars into companies that he believes are undervalued and then actively pushing for changes to increase value.
The latest headline-grabbing investment made by Mr. Ackman is his 16.5 percent stake in J.C. Penney. That makes him the largest holder of Penney stock. A filing by Pershing Square said it made the investment in the department store chain in consultation with Vornado Realty Trust, which owns 9.9 percent of Penney.
The combined clout of Mr. Ackman and Vornado's Steve Roth is expected to put increased pressure on Penney chief Myron "Mike" Ullman. The chain has lagged competitors such as Kohl's and Macy's and its stock has only recently begun to rebound.
Allen Questrom, the former CEO of Penney, told The Wall Street Journal, "Out of the leading department stores, Penney comes in dead last. So from my vantage point, Ackman's [involvement] is not bad. Clearly, J.C. Penney needs to improve its performance."
One area where Mr. Ackman may seek to realize value is through Penney's real estate holdings. The company operates over 1,100 stores and owns over 400. In 2008, Mr. Ackman tried to convince Target management to spin off its real estate holdings to become part of a real estate investment trust called Target Inflation Protected REIT (TIP REIT). At the time, Mr. Ackman argued TIP REIT would increase Target's value by roughly $30 a share.
"There is a lot of real estate and historically he's been a real estate-focused activist," Leah Hartman, senior vice president and retail analyst at CRT Capital Group, told Bloomberg News. "It certainly is a company that we see value in."
Ms. Hartman also thought Penney would be wise to use its cash to pay down debt.
Discussion Questions: Do you see the investment in J.C. Penney by Pershing Square Capital Management and Vornado as a positive or negative development for the future direction of the department store chain? What do you expect to happen?
Do you see the investment in J.C. Penney by Pershing Square Capital Management and Vornado as a positive or negative development for the future direction of the department store chain?