J.C. Penney Company, Inc. (NYSE:JCP) is undergoing deep losses, which has become the serious concern for the company’s largest shareholder Bill Ackman who is pushing the department store chain to go private before it falls and results in another billion dollars losses for shareholders.
In the past two and half years, since the hedge fund manager acquired the largest number of shares of J.C. Penney Company, Inc. (NYSE:JCP), the stock has declined 48 percent. Currently the stock is trading at a 72 percent discount to its $13 billion in annual revenue.
Michael Mauboussin: Here’s what active managers can do
The debate over active versus passive management continues as trends show the ongoing shift from active into passive funds. Q2 2020 hedge fund letters, conferences and more At the Morningstar Investment Conference, Michael Mauboussin of Counterpoint Global argued that the rise of index funds has made it more difficult to be an active manager. Drawing Read More
The net debt to market value ratio for the company is highest in the Industry, so there are very slim possibilities of a leveraged buyout. Ackman will have to try out to find buyout firms to put up cash for the deal and give some time for Chief Executive Ron Johnson’s efforts for reviving the company through a turnaround plan, which calls for converting the department stores into a collection of Botuiqes.
“The turnaround really hasn’t borne any fruit to date,” Morningstar Mackay said. “Both equity and credit investors are getting impatient.”
The second alternative could be to transfer some property into a real estate investment trust, according to International Strategy & Investment Group LLC.
In November 2011, Johnson stepped up asthe CEO of the company after working with Target Corporation (NYSE:TGT), and then Working with Apple Inc. (NASDAQ:AAPL) to assist them in creating their retail stores. When Johnson was hired by the company, Ackman termed it “a credit to the company.”
Unfortunately Johnson failed to rescue J.C. Penney Company, Inc. (NYSE:JCP), and the stocks slipped to their lows. The 111 year old retailer ran out of $4.3 billion of revenue in the first year of Johnson’s turnaround plan as a model of “everyday low prices” did not attract customers who were used to promotions and special sales.
One of the analysts believes that a buyer with deep pockets and skills of turning around business could acquire J.C. Penney. Going private will not bring back J.C. Penney’s customers who were discouraged by the scrapping of coupon and promotion model. The debt portion in J.C. Penny’s balance sheet will discourage a traditional LBO by other department store chains as such a transaction would involve borrowing more money.
Steven Roth, a board member of J.C. Penney Company, Inc. (NYSE:JCP) and a long time investment partner of Ackman dropped more than 40 percent of J.C. Penny shares. The loss incurred by Ackman’s Pershing Square Capital Management LP amounts to $370 million on a $1 billion investment in the starting.
According to an ‘analyst’, J.C. Penney Company, Inc. (NYSE:JCP) will be able to perform better as a private company instead of any turnaround plans because shareholders are in no mood to bear any further losses. J.C. Penny has a total debt of $2.9 billion and cash and equivalents amount to meagre $930 million. The retailer had negative cash flow last year.