JCPenney's (NYSE:JCP) biggest shareholder, hedge fund manager Bill Ackman, sold all 39 million of his shares in the struggling retailer on Monday (Aug. 27)—and Wall Street shrugged.
That's good news, and it suggests Ackman's exit was already a forgone conclusion. Ordinarily, selling such a huge bloc of stock in a troubled company would be a problem, both because of the signal it sends to other investors and the sheer number of shares that would flood into the market. But Ackman sold his shares for $12.90 each to Citibank, which will now find buyers at, it hopes, a profit. By Tuesday afternoon, JCPenney shares traded as high as $13.90 and settled at around $13.40, but the bottom didn't fall out from under the stock.
How much of a vote of confidence that is for Penney's new management is hard to say. But what's clear is that Ackman's grand plan for reinventing JCPenney—hiring Apple (NASDAQ:AAPL) retail guru Ron Johnson, eliminating the sales that Penney's customers loved, aiming for a younger, hipper crowd with more money—was a thoroughgoing failure. "Clearly, retail has not been our strong suit, and this is duly noted," Ackman wrote in a letter to his fund's investors.
The disaster will cost those investors at least $700 million, including both the loss on Ackman's shares, which he began accumulating three years ago, and an additional loss on a swap deal Ackman made in 2001. The loss to other Penney shareholders over the last three years is about $2.3 billion in share value. And the chain itself? Sales are down by more than $4 billion, from $13 billion to $7 billion.
Penney's has slowed that slide since Johnson was fired earlier this year, but hasn't yet reversed it. And the chain now faces a much more finicky set of shoppers who are drifting away even from department stores like Macy's (NYSE:M) and Nordstrom (NYSE:JWN), which haven't spent a year and a half trying to drive them away. Results from the so-far-shaky back-to-school period and the holiday season will determine just how far from a strong suit Ackman's retail failure really was.
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