Breakingviews on Twitter
Search League Tables

Tuesday, 24 May 2016

Picking battles

Bill Ackman's plate-spinning act gets dangerous

Bill Ackman is always ready for a fight – just maybe not so many at once. The activist hedge fund boss is embarking on a campaign at $22 billion Air Products & Chemicals amid high-profile tussles with Procter & Gamble, Herbalife and beyond. Resigning from the J.C. Penney board is prudent for more reasons than one. Ackman’s plate-spinning act is getting dangerous.

J.C. Penney is a mess much of Ackman’s own making. His handpicked chief executive turned out to be a disaster. The U.S. retailer’s shares have tumbled 60 percent since Ackman’s Pershing Square Capital Management disclosed its nearly one-fifth stake in 2010. Frustrations boiled over last week when Ackman, a J.C. Penney director, went public with renewed calls for leadership change.

The drama seems to follow Ackman. He lobbied hard to oust P&G’s boss – and succeeded. The $220 billion consumer giant’s shares are up by a third since Ackman’s arrival a year ago, only about 7 percentage points more than the S&P 500. Achieving his $125 target, another 50 percent climb, will require considerably more effort.

Meanwhile, Ackman invited a war at Herbalife after contending the nutritional supplements company is a fraud. His $1 billion short position attracted vocal opposition from, among others, billionaire investor Carl Icahn. The attention Ackman has brought to Herbalife hasn’t helped him yet: the shares have doubled this year.

Ackman’s performance is suffering as a result. Pershing Square is up just 3.8 percent in 2013, according to Reuters, compared to the 16 percent available from a broad stock index. The J.C. Penney situation also risks hurting future efforts. Companies generally invite uppity investors onto their boards to avoid unseemly public spats. If Ackman gets a reputation as a loose cannon director, it will give him fewer options as an activist. Backing down so quickly may help avoid that fate.

Leaving the board also eases Ackman’s path to exit J.C. Penney. As a director, stock sales are restricted. If he decides there are losses to be cut, he can now spare Pershing Square investors – and refocus efforts elsewhere. There’s bound to be a big presentation soon to lay out the thesis for a multi-billion-dollar bet on Air Products. Based on the muted response of the shares so far, Ackman may have another bruising battle on his hands.

Context News

Bill Ackman, the activist hedge fund manager, on Aug. 13 resigned from the J.C. Penney board days after he publicly called for the company to find a new chairman and chief executive.

Ackman’s handpicked CEO, former Apple executive Ron Johnson, stepped down in April following a series of missteps. J.C. Penney’s former chief, Myron “Mike” Ullman, then returned to the role.

Pershing Square Capital Management, the hedge fund firm founded by Ackman, owned 17.7 percent of J.C. Penney’s publicly traded stock as of March 31. The shares have been trading at around $13 apiece, down nearly 60 percent since Ackman disclosed his stake in October 2010.

On July 31, Pershing Square unveiled a 9.8 percent stake in Air Products & Chemicals worth more than $2 billion. The gas and chemicals seller adopted a shareholder rights plan to prevent any investor from acquiring more than 10 percent of the company without the board’s approval.

The hedge fund manager also has a $1 billion short position against Herbalife. The trade pits him against other activist investors, including billionaire Carl Icahn, who has a 16 percent stake in the nutritional supplements company.

(Launches in a new window)