Ackman exits JC Penney after three years amid huge losses

Bill Ackman has put his stake in JC Penney up for sale as the hedge fund manager prepares to end three years as the biggest shareholder in the department store business where he has lost at least 40% of his original investment.

In a letter to investors in his fund this month, Mr Ackman said that as of August 16 JC Penney “stock trades at a more than 40% discount to our average cost” of investment. Given that Mr Ackman holds 39 million shares and the stock closed at $13.40 on August 16, that suggests he is carrying a paper loss of at least $349 million. It is not known at what price he will be able to sell the shares.

In a statement Mr Ackman acknowledged that his JC Penney investment had been a “failure”. But in recent weeks he has sought to portray the hiring of Mr Johnson as a move that all JC Penney directors wanted.

Mr Ackman resigned from JC Penney’s board earlier this month after differencies between him and fellow directors have turned into public quarrel. It was sparked by the hedge fund manager’s unhappiness over the performance of Mike Ullman, who was brought back as chief executive in April to replace Mr Johnson having stepped down in 2011 to make way for him. JC Penney, which has over 1,000 stores mostly in regional malls, will not receive any proceeds from Mr Ackman’s share sale, it said.

“Ackman bought his stake in order to influence the board to make big changes, not as a passive investment. Now it makes no sense to hold the position. Its time to move on to another company,” said Erik Gordon, a law and business professor at the University of Michigan cited by Reuters.

Last week, Penney adopted a one-year prevention policy to stop any coercive takeover attempts by limiting a single investors stake to 10 percent. Analysts widely interpreted the policy as a move by Penney to avoid another distracting fight with an activist at a time it is trying to win back shoppers after sales fell hard last year and are continuing to fall this year.

JC Penney lost 1.11% yesterday and has been retreating by 32% since the beginning of this year.