Ackman acknowledges retail blunders, digs in on Herbalife

Wed Aug 21, 2013 3:03pm EDT
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By Svea Herbst-Bayliss

BOSTON (Reuters) - Activist investor William Ackman admitted he made mistakes in bets on retailers, including J.C. Penney (JCP.N: Quote) where he has lost hundreds of millions of dollars, but is sticking by a wager against Herbalife (HLF.N: Quote), where he faces big paper losses.

In a letter to shareholders written less than a week after his embarrassing departure from the J.C. Penney board, Ackman, 47, counted three "failures" at his $11 billion hedge fund Pershing Square Capital Management. All were retailers: Borders Group, now bankrupt, Target, and J.C. Penney.

He said he may exit Penney, where he owns 39 million shares and is the company's biggest investor, but would not say when. At Target, he stuck it out for 19 months after losing a bitter and expensive proxy fight, he reminded investors.

He also devoted plenty of ink to his other current problem bet, Herbalife, where he is sitting on some $300 million in losses, and said there are signs things may yet turn his way.

"Clearly retail has not been our strong suit, and this is duly noted," Ackman wrote in a 23-page long, second-quarter letter to investors, dated August 20 and seen by Reuters.

Coming three years after he built his Penney stake and told skeptics they would shop at the ailing retailer after he overhauled the store, the letter signals an acknowledgement of weakness and insight not often seen among hedge fund managers.

"Retailing is for retailers. It's not for hedge fund managers," said Erik Gordon a law and business professor at the University of Michigan. "Successful retailers have spent their whole lives in the business. Ackman finally figured that out."

For Herbalife, where Ackman is pitted against other big fund managers, including George Soros and Carl Icahn, the jury is still out, Ackman said, noting its fate is in the "undecided column."   Continued...

William Ackman, CEO of Pershing Square Capital Management, speaks at the Partner Connect 2013 conference, sponsored by Thomson Reuters, in Boston April 5, 2013. REUTERS/Brian Snyder