Ackman may be eyeing exit as JC Penney bet in tatters

Tue Apr 9, 2013 1:33pm EDT
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By Svea Herbst-Bayliss and Katya Wachtel

BOSTON/NEW YORK (Reuters) - William Ackman's multiyear bet that he could overhaul ailing retailer JC Penney (JCP.N: Quote) looks like it may end up being one of his $12 billion hedge fund's worst investment blunders.

On Monday, JC Penney's board dismissed Ron Johnson, a former Apple executive handpicked by Ackman to remake the retailer, and brought back Mike Ullman, whom Ackman has previously criticized.

Now the hedge fund manager is likely searching for his own quick exit from an investment that is costing his $12 billion Pershing Square Capital Management millions in losses and has tarnished his reputation, say industry analysts and investors.

Selling off parts or taking the company private would be ways to quit now that JC Penney's slumping stock price has cost Pershing Square some $500 million in paper losses, people familiar with the firm said.

"The faster Ackman and group sell JCP's valuable assets to someone else, the more value they will capture," said George Bradt, managing director of PrimeGenesis, an executive consulting firm. "The longer they stay distracted with sure-to-fail ideas like fixing the business or taking it private, the less value will be left when JCP finally ceases to exist."

Taking it private is also a viable way for Ackman to get out. Even before Pershing Square and Vornado Realty Trust showed up in 2010, private equity investors were circling.

Today, a purchase would be cheaper with the stock price near at $14 a share, down about six dollars a share from where Ackman started buying. And a deal would still be attractive for players like Blackstone Group (BX.N: Quote), KKR & Co (KKR.N: Quote) or Apollo Global Management LLC (APO.N: Quote) because JC Penney still has valuable real estate holdings, owning nearly half of its space and leasing the rest at $4 a square foot.

Ackman has long championed JC Penney's vast real estate holdings as one reason the company should be trading at a higher stock price. Joining the JC Penney board in 2011, he also said less than a year a ago that Pershing Square could make 15 times its money if Ron Johnson's ambitious turnaround plans worked.   Continued...

Activist shareholder William Ackman of Pershing Square Capital Management speaks during the Canadian Pacific Railway Ltd. shareholders and analysts meeting in Toronto February 6, 2012. REUTERS/Mike Cassese