Einhorn’s Greenlight Closes J.C. Penney Short Position

Greenlight Capital Inc. closed its short position on retailer J.C. Penney Co. and sold its long holding in Microsoft Corp. in the second quarter, founder David Einhorn said in a letter to investors.

Greenlight, which oversaw $8.8 billion in assets at the start of the year, returned 1.2 percent in the quarter and 7.1 percent in the first half of 2013, the hedge-fund firm said in today’s letter, a copy of which was obtained by Bloomberg News. J.C. Penney was “our most profitable short of 2012,” and Greenlight covered its position when the board fired Chief Executive Officer Ron Johnson “before he could turn the company into a penney stock.”

J.C. Penney, based in Plano, Texas, is trying to rebound from a 25 percent drop in sales last year under Johnson’s leadership. He was replaced as CEO by Myron Ullman in April. Ullman, who ran the chain from 2004 to 2011, borrowed $850 million from the company’s credit line and secured a loan of $2.25 billion from Goldman Sachs Group Inc.

“In 2006 we compared Microsoft to A-Rod, which was a compliment at the time,” the firm said, likening the Redmond, Washington-based software maker to New York Yankees baseball player Alex Rodriguez. “In 2013, the comparison is still apt, but it is no longer a compliment.” Windows 8 “appears to be a flop, and a decade of mismanagement has put Microsoft at risk of becoming a shrinking company,” the firm told clients.

Greenlight also closed long positions in CBS Corp., Seagate Technology Plc, Sprint Corp. and Republic Airways Holdings Inc.; and shorts in Aruba Networks Inc., Boston Properties Inc. and Essex Property Trust Inc., Dick’s Sporting Goods Inc. and Greenhill & Co.

The fund added long holdings in ING US Inc. and Greek banks Alpha Bank AE and Piraeus Bank SA, according to the letter.

In a short sale, an investor borrows a stock and then sells it in anticipation that the price will fall and it can be repurchased at a lower price later.

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