Penney costs Ackman $700 million

August 13, 2013

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Two years into his JC Penney investment, hedge fund manager Bill Ackman has lost $700 million and abruptly resigned from his seat on the company’s board of directors. The company’s stock is down 45% in the last year. Today’s surprise announcement that he would step down from the Penney board comes after he called for the removal of the company’s interim CEO and chairman, only to be rebuffed by other board members and fellow shareholder George Soros. Ackman is also dealing with a souring short position in Herbalife, whose shares have risen over 100% so far this year.

Losing hundreds of millions of dollars publicly isn’t something you can easily forget, but competitors to Ackman’s Pershing Square fund seem to be enjoying his slip ups. Dan Loeb used the uber-insider medium of the Bloomberg terminal to presumably needle Ackman (twice). If that weren’t enough for Ackman, Carl Icahn and Soros have been on the opposite end of his bet against Herbalife. Sapna Maheshwari and Mariah Summers write that “Ackman seems to be coming unglued”. Gina Chon thinks it has suddenly “become cool to trash Ackman” because he is losing such vast amounts of money.

Ackman, who intentionally courts media scrutiny, might be abrasive, but he doesn’t lose too often. Justin Fox believes Ackman is doing the market’s work in pushing beleaguered companies like JC Penney to turn themselves around.

There may still be a path to profitability for Ackman’s short in Herbalife. William Alden and Andrew Ross Sorkin report new details that could lead to regulatory action. In 2011, fine shards of metal were found in the company’s shake mix as it was coming of the production line. A week after production resumed, Herbalife’s SVP for global quality said that if the plant were inspected by the FDA “in the next month, they’re fucked… I don’t know how else to put it”. Herbalife maintains that no tainted products made it all the way to consumers.

The newly-reported internal documents may explain why Ackman took his so-far losing position in Herbalife: the employee who obtained them first approached the FDA, then Ackman. Ackman is now paying the employee’s legal bills. Herbalife, however, dropped just 2.5% today. It is still up more than 75% since Ackman announced via a 300-page presentation that it would fall to zero. — Ben Walsh

On to today’s links:

How much should Detroit be paying for bankruptcy consultants? – Detroit News

The Fed
Janet Yellen’s views on banking policy changed after the financial crisis – WSJ
“Summers has demonstrated essentially zero crisis-prevention skills” – Felix

Stories of the reverberating subprime mortgage crisis – Peter Eavis

The town of Whiteclay, Nebraska, sells 1000 cans of beer per resident per day – Tim Murphy

Primary Sources
Introducing the Hyperloop – Elon Musk
“Elon Musk’s Hyperloop is a political manifesto, not just a tech trick” – Kevin Roose

New Normal
“The Bloomberg years have been very good ones for people who can afford to live in Park Slope” – George Packer
The press, and their sources, need to use encrypted communication – Poynter

“In my rare coffees and phone calls with Milton Friedman…” – Brad DeLong

Billionaire Whimsy
“Skilled craftsmen in Normandy” made a $13,300 copper bathtub for NYC’s Mayor – AFP

“Experts: Tree drips with bug excrement, not God’s tears” – WPTV
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