Big Investors Could Mean Big Changes for Penney
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
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?
- Big Shoppers Bag 26% of J.C. Penney – The Wall Street Journal
- Ackman’s Pershing Discloses Stakes in J.C. Penney, Fortune – Bloomberg