In a letter sent Tuesday to shareholders in his activist investing firm, Pershing Square Capital Management, Ackman said he might sell his stake in J.C. Penney Co. Inc. and acknowledged a series of mistakes while investing in retail.
But he also vigorously defended his track record, offered nuanced explanations of his missteps and gave no ground to his detractors.
In short, even after a series of setbacks, William Ackman remains William Ackman — and he isn’t going anywhere.
“We are going to make mistakes,” Ackman wrote. “Because we manage a large pool of capital and we make active investments in large capitalization, high-profile companies, our mistakes are often going to be much more visible than those of other investment professionals.”
While noting the activist investor needs “thick and calloused skin,” Ackman said his company’s high profile would “continue to be a sustainable competitive advantage.”
The investor has been sorely criticized for his role at Penney’s, where he took a stake in 2010 and later helped install Ron Johnson as chief executive officer. Johnson’s effort to transform the firm into a series of shops-in-shop led to a 25 percent sales decline and a $1 billion loss from which the company is still struggling to recover.
Ackman described the Penney’s investment as a failure and said the stock is down more than 40 percent versus his cost to build the stake. He also noted investments in Borders Group and Target Corp. were failures. “Clearly, retail has not been our strong suit, and this is duly noted,” he said.
Ackman said Penney’s was “a higher-risk, higher-potential-reward investment.” He also noted his vocal support for Johnson “caused the media to conclude erroneously that we were controlling the decision making at the company despite the fact that we had only one seat on J.C. Penney’s 11-person board. All of the board’s decisions with respect to replacing Mike Ullman and hiring Ron were unanimous.”
Myron “Mike” Ullman 3rd was brought back in as ceo in April to stabilize the company, but the search for a new leader to take the reins on a more permanent basis was slower to start than Ackman expected.
“Mike settled in as a longer-term ceo and began to make a series of material changes in personnel and operations that were not consistent with the actions of a typical interim ceo,” the investor said. “We also began to have concerns about capital investment plans, cost control, inventory management and the business-planning process.”
Ackman aired his views publicly, sparking a board battle that ultimately saw him step down as a director of Penney’s this month. “Sharing our concerns publicly has the benefit of focusing all constituents inside and outside the company on these issues,” he said.
Penney’s stock could rise substantially from current levels, Ackman said, noting it was hard to tell how long the recovery would take.
“We may choose to exit J.C. Penney after more or less time depending on developments at the company, the stock price and the availability of other investment opportunities,” he said.
Pershing Square held Target’s stock for more than 19 months after he failed to remake the board in a proxy battle.
Procter & Gamble Co. is also on the investor’s radar. Ackman pushed to oust Bob McDonald, former ceo, who ultimately stepped down and was replaced by his predecessor, A.G. Lafley.
“Lafley will enhance organic growth, accelerate P&G’s existing cost-cutting program, increase innovation, implement a succession plan and improve employee morale significantly,” Ackman said. “With a meaningful portion of his net worth invested in P&G stock and options, and a legacy as one of America’s greatest chief executives on the line, Lafley is incredibly motivated to turn around P&G in a timely fashion.”
Pershing Square sold a portion of its stake in P&G for “portfolio management reasons,” but still has 5.3 percent of its funds invested in the company.
Ackman said 16 of the 19 companies Pershing Square has invested in have been successful, while four of the five of the firm’s short positions have panned out. He put the controversial Herbalife investment in the undecided column.
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