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Picking battles

13 Aug 2013 By Jeffrey Goldfarb, Agnes T. Crane

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.


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