J.C. Penney Company (NYSE: JCP) has been in the news for all the possible wrong reasons. Since the resignation of activist investor William Ackman of Pershing Square the stock is down by a third, and is trading at $8.75. This is the lowest level for the stock in the last 31 years.
However, Ackman did not have a profitable venture in JCP’s stocks. In August, more than two years of buying the stocks and getting his way with the board on many matters, Ackman decided to resign from the board and sell his shares. He sold his 39 million shares to Citigroup for $12.60 per share – losing nearly half a billion dollars.
Following Pershing Square in the same track of losing on these stocks is Perry Capital. Perry raised its stake in JCP to nearly 8.62% of the retailer (or 19 million shares) after Ackman resigned. But late Monday, Perry announced that it has reduced its stake to 3.38% of JCP. Perry, unlike Ackman, took the hit of the dilutive stock sales on Friday which causes the stock to fall 13% on the announcement. The stock sales of $810 million shores up liquidity for the ailing retailer, but are extremely dilutive to existing holders. Yesterday, JCP was sued by a shareholder, with the support of shareholder rights class action law firm Robbins Geller Rudman and Dowd. The primary issue: the day before the stock sale, the CEO went on TV announcing that JCP has enough liquidity.
We believe that JCP has lost its investor’s trust, it’s employer’s trusts with its store closings and finally its customer’s trusts by completely changing their strategy under CEO Johnson – moving away from sales; and then changing it back again, but not yet matching prices from retailers like Macy’s (NYSE: M). We do not see an immediate lower bound for the stock and unless there is a (very unlikely) takeover bid we see the shares going down a further 20% from yesterday’s level. Unfortunately, on this stock, we are not on the side of legendary investor George Soros, who still holds about 20 million shares in the firm.