Hedge fund manager Bill Ackman, the founder of $US12 billion Pershing Square Capital Management founder, can’t stay out of the spotlight.
Ackman’s two huge, public bets on JCPenney and Herbalife have gone disastrously wrong this year, and, to many, Ackman’s behaviour seems increasingly desperate and unhinged.
Ackman has been betting on a turnaround at the struggling retailer since 2010 and he’s been betting that nutritional product seller Herbalife will fail.
To some, his latest behaviour–trying to replace the new CEO of JC Penney only four months after Ackman brought him in to repair the damage inflicted by Ackman’s last CEO–to accusing a fellow hedge-funder George Soros of criminally ganging up with other investors to attack his Herbalife short–reek of desperation, or worse.
We checked in with a source close to Ackman to get a reaction to this. Our source familiar with Ackman assured us that Ackman is not having some sort of meltdown.
In fact, our source says, Ackman is “very calm” and was swimming laps on Friday afternoon. What’s more, Ackman considers this sort of investing “fun,” the source explained.
What is apparently fun for Ackman, however, is rubbing others the wrong way.
Starbucks CEO Howard Shultz, for example, described what Ackman has done to JC Penney as “despicable.” And the JC Penney drama is a long way from being done.
Ackman, who is JCPenney’s top investor, fired off two public letters to JCPenney’s board last week.
His first letter on Thursday demanded that they replace JC Penney’s interim CEO Mike Ullman in the next 30 to 45 days.
Ackman’s second letter, on Friday, said that he has lost confidence in the board’s chairman Tom Engibous and called for his replacement with retail legend Allen Questrom.
JCPenney responded to Ackman by saying his “latest actions are disruptive and counterproductive.”
There have also been reports that Ackman, the largest shareholder in JCPenney and member of the board, threatened to sell his shares if the board didn’t find a new CEO.
Of course, that would be at a big loss for his fund. Since September 28, 2010, the date of his initial 13D regulatory filing on JCPenney, shares of the retailer have tumbled more than 47%.
According to some retail analysts, the timing of Ackman’s letters is incredibly poor, especially since retailers are gearing up for the back-to-school season.
“He’s a media disaster. That’s what he is. If there are things going on with the company, the last thing you want to do is air your dirty laundry in public. And when you are trying to attract someone to take over the company, what do you think the board is doing at a crucial time like back to school? Denying these claims,” an analyst who wished to remain anonymous, commented.
The back-to-school work for JCPenney, such as picking out inventory and merchandise, has already happened, though.
According to Brian Sozzi, Belus Capital’s CEO and chief equities strategist, the concern surrounding Ackman’s actions would be on the potential impact on the holiday season and the first quarter of next year.
“What the letter has done, if the news flow from prior weeks didn’t already, is knock the first domino over in a chain of events that could impact holidays and the first quarter of 2014. JC Penney owns all its back to school items, correct. But, what it doesn’t own is the market price it will get for those goods. If vendors are telling them it will cost more to get them the merchandise it requires to compete during the holidays, JCPenney may look to become especially promotional for back to school. Inventory is a retailer’s lifeline to cash daily,” Sozzi told us.
“So while they are out discounting more for back to school, and getting higher invoices for their vendors for future purchases, the stock market will grow concerned regarding the company’s liquidity levels and access to additional liquidity. As the stock goes down, vendors get even more nervous, charge higher prices, JC Penney becomes more aggressive with its inventory to raise cash,” he added.
Another analyst felt like Ackman isn’t taking responsibility for JCPenney’s situation because he was the one who picked the former disastrous CEO Ron Johnson as CEO. Ullman was asked to return to rescue the company after Johnson got ousted back in April.
“Bottom line — Ackman got his company into this situation by hiring Ron Johnson and he was happy to turn on him. Now he’s throwing a tantrum because he wants Ullman out because things are not happening quick enough. The guy has been around for four months. They should be thanking Ullman for stepping in. All these public tantrums, any CEO, good luck getting him in there,” an analyst, who wished to remain anonymous, explained.
Still, Ackman isn’t the only large investor who wants to see change in JCPenney’s management. Hedge fund manager Richard Perry’s firm, which owns a 7.3% stake in JCPenney, also sent a letter on Friday asking the retailer to replace Ullman, CNBC’s David Faber reported.
And then there’s Herbalife.
At the beginning of last week, there were shocking reports that Ackman had filed a complaint with the SEC accusing George Soros’s Soros Fund Management accusing them of violating securities laws by illegally colluding with other investors and ganging up on him.
Before that news broke, CNBC’s Scott Wapner reported that Soros had amassed a large long position in Herbalife. Herbalife, a multi-level marketing firm that sells nutrition products, is the stock Ackman is famously short. He’s shorting $US1 billion worth of Herbalife because he believes the company is a “pyramid scheme.”
“Well this seems to be like a desperation move and the kettle calling the pot black. When Mr. Ackman went short he had a huge public announcement and urged people that the stock was way overvalued. Now there are people buying the stock and it’s cutting into his profits, so he’s trying to retaliate,” former SEC chairman Harvey Pitt said in an interview with CNBC this week.
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