William Ackman’s Pershing Square Capital Management LP hedge fund plans to raise its stake in JC Penney Co, signaling the activist investor's confidence in the retailer's long-term prospects. JC Penney shares rose.
Pershing Square and affiliates plan to acquire a "synthetic long position" to make its exposure to the retailer equal to as much as 26.1 per cent of its outstanding common stock, according to a US Securities and Exchange Commission filing on Saturday.
Ackman, who was named to JC Penney's board earlier this year, holds an 18.3 per cent stake in the company, according to a filing on Saturday. The retailer in January decided to shut its catalog business and related outlets after talks with Ackman, 45, about improving results.
"It shows his conviction and the potential of the business," Joe Feldman, an analyst for Telsey Advisory Group in New York, said in a telephone interview. "He is putting his money behind it."
Ackman didn't immediately return a telephone message seeking comment.
JC Penney rose 57 cents, or 2.4 per cent, to $24.38 at 4:01 p.m. in New York Stock Exchange composite trading after earlier declining as much as 1.6 per cent. The shares had dropped 26 per cent this year before on Saturday.
STOCK AGREEMENT
Under the agreement signed on Saturday, Ackman will reduce his voting rights to 15 per cent of shares outstanding, said Darcie Brossart, a JC Penney spokeswoman. The agreement also bars Ackman from increasing the number of shares he holds without prior written consent from Plano, Texas-based JC Penney.
"Pershing wanted to increase its investment, and that is why they went into negotiations with the board," Brossart said on Saturday in a telephone interview. "Obviously, he sees JC Penney stock as an attractive investment opportunity."
Ackman often invests in public companies by both purchasing their stock and by entering into total return swaps. A synthetic long position typically refers to a derivative contract, such as a total return swap, in which the investor receives cash payments should a company's shares rise without actually holding the stock and the related voting rights.
