Thursday, August 15, 2013

William Ackman, Major Fund Manager and Major Investor in J. C. Penney Wants to Replace the CEO

Saving the Company, or Saving Mr. Ackman From His Embarrassing Losses

[Update:  Mr. Ackman has since resigned from the Board of J. C. Penney, apparently out of acute embarrassment.]

The people that manage money are supposed to be some of the brightest men and women on the planet.  After all, that’s why they get the big bucks, (and no, not because they work very hard.  They don’t).  So here’s good old William Ackman and his investment in retailer J. C. Penney.

J.C. Penney Co.'s  largest shareholder is pressing the board to quickly replace its chief executive, as the battered department-store chain struggles to turn around a deep slide in sales.

So why is Mr. Ackman upset?  Well his performance at least as far as J. C. Penney is concerned has come up a little short.

Mr. Ackman's Pershing Square Capital Management LP is under pressure as well. His investment in Penney has lost more than $600 million, nearly half its value, and his $1 billion bet against nutritional supplement distributor Herbalife Ltd. is in the red as well, with paper losses of about $350 million, according to people familiar with the matter.

Oh, this wizard of Wall Street has lost 50% of his investment in Penney's.  Maybe he does work harder than we think, one would have to work pretty hard to lose 50% of an investment in a NYSE company.  And what about his fund’s performance.

While his fund is up 4% through July, according to a letter to his investors, that compares poorly with the average 7.7% gain for other stock hedge funds tracked by research firm HFR and the nearly 20% gain for the Standard & Poor's 500-stock index, including dividends, for the period.

So Mr. Ackman is thinking that if only the Board will listen to him and change CEO’s everything will be alright.  Here’s how Mr. Ackman did the last time he had an idea about a CEO for the company.

It was Mr. Ackman who, as a director, lobbied successfully to bring in former Apple Inc. executive Ron Johnson as chief executive in 2011, a choice that set off a disastrous year of plunging sales, diminishing cash reserves and deep job cuts.

The chain of middle-market department stores is still struggling to recover from the damage. Suppliers to the company estimated sales at stores open at least a year—a key measure of a retailer's health—fell by more than 10% in the three months through July, and the cash is running lower than some analysts had expected.

Surprise, surprise, the Board is not really listening to Mr. Ackman this time.  Well maybe not a big surprise, the Board does have a fiduciary responsibility to the shareholders.

Now we have no idea how much money Mr. Ackman makes for running his fund, but even without knowing the amount one can easily reach the conclusion that he is being paid to much.

1 comment:

  1. As a lifelong J.C. Penney customer I predicted the problems Penney had under Ron Johnson. Unlike Mr. Johnson, I knew who my fellow customers were and what they wanted--decent merchandise at fair prices and not trendy stuff that would be out of style in a week. I'm sure many people also miss the Penney catalog since it was heir to the catalog shoppers jettisoned by Sears. No matter how much people shop by Internet, a paper catalog often precedes that shopping--almost 90% for me. And people like sales and shopping for a bargain. Look at e-Bay! I just hope J.C. Penney can find its way back from the ruinous Mr. Johnson, and please Mr. Ackman, just go away and shut up.