William Ackman’s Pershing Square Capital Management LP hedge fund plans to raise its stake in J.C. Penney Co., signaling the activist investor’s confidence in the retailer’s long-term prospects. J.C. 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 percent of its outstanding common stock, according to a U.S. Securities and Exchange Commission filing today.
Ackman, who was named to J.C. Penney’s board earlier this year, holds an 18.3 percent stake in the company, according to a filing today. The retailer in January decided to shut its catalog business and related outlets after talks with Ackman, 45, about improving results.
Ackman didn’t immediately return a telephone message seeking comment.
J.C. Penney rose 57 cents, or 2.4 percent, to $24.38 at 4:01 p.m. in New York Stock Exchange composite trading after earlier declining as much as 1.6 percent. The shares had dropped 26 percent this year before today.
Under the agreement signed today, Ackman will reduce his voting rights to 15 percent of shares outstanding, said Darcie Brossart, a J.C. Penney spokeswoman. The agreement also bars Ackman from increasing the number of shares he holds without prior written consent from Plano, Texas-based J.C. Penney.
“Pershing wanted to increase its investment, and that is why they went into negotiations with the board,” Brossart said today in a telephone interview. “Obviously, he sees J.C. 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.
In March, Ackman teamed up with former associate Richard McGuire of Marcato Capital Management LLC to buy a 9.9 percent stake in Alexander & Baldwin, a Honolulu-based container ship and land company. They spent $168.8 million to purchase 4.1 million common shares and used total return swaps to gain an economic interest in an additional 372,900 common shares, according to an SEC filing.
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