Bill Ackman Opposes Himself and J.C. Penney

NEW YORK (TheStreet) -- So far the same activist investor who told the world he might sell or short shares of Herbalife (HLF) is now trying to save his nearly 20% stake in an old-time retailer.

Even a small investor can short the wrong stock and go long an equally erroneous one. But when the person responsible for Pershing Square Capital Management LP has accomplished this it's puzzling.

Bill Ackman's investment in one of the oldest retailers in the U.S. J.C. Penney ( JCP) is down nearly 50% from the $600 million he invested in JCP.

This on top of his $1 billion bet against the renowned multi-level marketing distributor of nutritional supplements, which reportedly has racked up losses of nearly $350 million and the smell of old fish wafts higher in the air.

Lots of news has surfaced that although Ackman's fund is up 4% by the end of July 2013, other equity hedge funds have averaged nearly an 8% gain during the same time period. It looks even worse when compared to how the S&P 500 performed during the first 7 months of 2013, up almost 20%.

Perhaps the disparity in Ackman's investment style can best be illustrated by this 1-year price chart of both HLF and JCP. He and Pershing Square seemed to have helped HLF while harpooning JCP.

Perhaps the disparity in Ackman's investment style can best be illustrated by this one-year price chart of both HLF and JCP. He and Pershing Square seemed to have helped HLF while harpooning JCP.

HLF Chart HLF data by YCharts

This chart speaks louder than the Thursday letter Ackman wrote to the board of JCP and made public by CNBC on Friday. He demands that a new CEO be located and installed "within 30 to 45 days."

As the largest shareholder of JCP, Ackman has stated publicly that he has just one overriding goal in his demands: is to help save one of the great American companies.

Jim Cramer shared his views Friday in a missive titled "J.C. Penney Goes From Bad to Dire." In his bold and direct style of writing Cramer wrote:

"But this one Ackman's activism within JCP has been downhill ever since, and as someone who comes from a retail background and has been steeped in it all my life, this Penney tale of woe sure doesn't feel like it's going to end well."

What really caught my attention was a disclosure by Cramer of an email he'd received from the CEO of Starbucks ( SBUX), Howard Schultz, on this heated subject. Cramer's willingness to share the unedited email is greatly appreciated.

"I learned today, that Bill Ackman turned on the shareholders OF JCPENNEY and ITS CEO Mike Ullman FOR WHOM I HAVE THE HIGHEST REGARD BY LEAKING a despicable and corrosive email asking that Mike step down as ceo of JCPenney.

"As a result, I cannot be a bystander and allow this to stand. Especially, WHILE Mike IS workING tirelessly to literally save the company, that Ackman himself, has every step of the way, SEVERELY DAMAGED. There's much more to this story.

"Ackman has blood on his hands for recruiting and handing over the Crown Jewels of Penney's without the slightest sight of governance to Ron Johnson. With his investment and reputation under water, he's now DESPERATELY rewriting history, bullying the Board, and using his scorched earth strategy to try and salvage HIS ALREADY SULLIED REPUTATION.

"This should not stand without a rebuttal of truth, and yes justice.

"I have not met the man, but Ackman is a destroyer of companies and the very lives of the hard working American's who go to work every day playing by the rules and hoping for the same from the people at the top.

"Bill Ackman should be removed from the Board for violating his fiduciary responsibilities and the rights and lives of the wonderful employees of JCPenney and its dedicated ceo.

"For the record, I am not a shareholder of JCPenney. I just have a vested interest in the truth; and, I see the lives of good people being destroyed."

As Cramer put it, "That's some strong stuff from the man I now regard as the greatest retailer of this generation."

Cramer concluded by stating, "I am sure that Schultz's view has become the predominant view in retail circles, including the ones that may be tapped into to get a replacement for JCP CEO Ullman."

JCP has a tough row to hoe in today's competitive retail world. Last week it was virtually compelled to deny rumors that CIT Group ( CIT) had stopped financing shipments to the company. Then in an effort to comfort investors it announced it had ended the 2nd quarter with $1.5 billion cash.

One of the big fiscal problems JCP faces is that as of the end of the last reported quarter it was carrying a debt burden of almost $4 billion. To make matters worse some analysts expressed concerns that the company was spending its cash way too fast.

Meanwhile, Ackman stated in his demand letter to the board that if they didn't find a new CEO fast and have his demands met, he'd sell his massive stake in JCP and move on.

Many, including me, wonder if he's looking for an excuse to cut his losses and move on. If that is the case, it would seems more like a form of self-sabotage and a way of saying, "If I'm going down, Penney will go with me".

Schultz's email tirade seems spot on when one thinks of all the others who will suffer as well.

As Cramer opined concerning JCP as an investment theme, "It's just not worth being involved in any way shape or form, from the investors, including Ackman, to the creditors to the salespeople themselves. Time for everyone to cut their losses and move on."

I couldn't agree more!

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Marc Courtenay is the founder and owner of Advanced Investor Technologies, LLC, as well as the publisher and editor of www.ChecktheMarkets.com.

Courtenay holds a Master's of Science degree in Psychology from California Polytechnic State University, and is a former senior vice-president of Investments for two major brokerage firms. He's been a fiercely independent investment "investigator" and a consulting contributor to the investment publishing world for over 30 years. In addition to his role as an investment publisher and analyst, he serves as a marketing consultant to the investment media industries.

In his role as a financial editor, he specializes in unique investment strategies, overlooked stock investments, energy and resource companies, precious metals, emerging growth companies, the prudent use of option strategies,real estate related opportunities,wealth preservation, money-saving offers, risk management, tax issues, as well as "the psychology of investing". Because of his training and background in Clinical Counseling and Psychology, he enjoys writing about investor behavior, the ¿herd mentality, how to turn investment mistakes into investment breakthroughs and the stock market's behavioral trends and patterns.


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