William Ackman’s losses on his investment in J.C. Penney Co. surpassed $650 million as the shares fell following the departure of Chief Executive Officer Ron Johnson.
J.C. Penney shares dropped 12 percent to $13.95 at 11 a.m. in New York, bringing paper losses at Ackman’s Pershing Square Capital Management to about $467 million on the roughly $1 billion that it spent to acquire 39 million J.C. Penney shares, according to regulatory filings. The New York-based hedge-fund firm also has partially realized losses of about $192 million on total return swaps tied to the price of J.C. Penney shares.
Ackman reported in October 2010 that the $13 billion Pershing Square had acquired a 16.5 percent stake in J.C. Penney, paying an average of about $25.90 a share. Pershing Square increased its bet in September 2011 by entering into swap contracts on an additional 15.9 million J.C. Penney shares. When the contracts mature, Pershing Square would be required to make cash payments to the extent the market price of these shares is less than $26.14 each.
J.C. Penney yesterday ousted Johnson and reinstated his predecessor Myron E. Ullman III as the department-store chain seeks to rebound from its worst sales year in more than two decades. Sales in the year ended Feb. 2 plunged 25 percent to $13 billion, the lowest since at least 1987.
Ackman, who has made several investments in retailers through Pershing Square, has seen some bets in the industry fare poorly. In February 2009, Ackman sent a letter to his clients telling them that a $2 billion fund he had set up at the time to invest solely in Target Corp. had lost 90 percent of its value. Pershing Square owned 31 percent of Borders Group Inc. when the bookseller filed for bankruptcy protection in 2011. Ackman didn’t return calls and an e-mail seeking comment.