Billionaire hedge fund manager William Ackman chose the last day of July to announce his biggest investment ever, a $2.2 billion bet his Pershing Square hedge fund made to take a 9.8% stake in . Then things fell apart. …read more
Source: FULL ARTICLE at Forbes Latest
By Dan Newman, The Motley Fool
Filed under: Investing
Even Ron Johnson, a ringer from Apple‘s retail business, couldn’t step in to save the struggling J.C. Penney . Looking back on his tenure, many will question his choice to cut regular prices instead of promoting sales with little testing of the concept; whether he had enough time to prove himself; and if Johnson’s strategy would have been better than a now-undefined strategy. While these hypothetical questions are entertaining to ponder, there is one solid truth we can take away from his CEO stint, best summed up by none other than Warren Buffett: “Good jockeys will do well on good horses, but not on broken-down nags.”
Choosing all-star management
Management should be one of the first things an investor studies about a business. And seemingly, an investor would crave having Ron Johnson in charge of an investment. He created Apple’s retail store experience, leading it to earn over $6,000 per square foot, the highest sales per square foot of any retail store in America. He seemed to be a retail guru, with heady quotes such as: “You have to create a store that’s more than a store to people.” But at that point, before taking over at J.C. Penney, he had earned the right to say such things. He owed the Apple Store‘s popularity to the fact that “the staff isn’t focused on selling stuff, it’s focused on building relationships and trying to make people’s lives better.”
But as important as management is, it’s just one piece of a business. Before Johnson took over, according to Pershing Square‘s overview of the business, J.C. Penney’s problems were excessive promotions, commodity products, a poor store experience, and a limited customer base. From 2007 to 2011, revenue fell 13% and earnings before interest and taxes fell more than 50%, making it the worst performer out of competitors like Macy’s, Kohl’s, T.J. Maxx, and Nordstrom. New management would have its work cut out for it.
And the failing business wins
Even with great management, it’s difficult for a company with negative trends to break the momentum and turn around. Even with Johnson, J.C. Penney continued to hurt. Over the past year, revenue declined 25%. From earnings per share of $0.82 in 2011, J.C. Penney lost $2.38 per share in 2012, and lost $2.51 per share just in the first quarter of this year. Turning around a troubled company isn’t easy, even for a great manager. And usually, the troubled company wins.
It could be that Johnson didn’t have enough time to pursue his strategy. Nobody came to Apple’s “Genius Bar” in the first few years of its existence. But the difference is that Apple could take the time to build up its retail arm. J.C. Penney’s dire situation meant that any manager would have to act quickly. When even one of the most promising CEOs couldn’t help, it’s likely the business that’s at fault. As much as management is key to business, the business has to be able to be managed …read more
Source: FULL ARTICLE at DailyFinance
By Michael Lewis, The Motley Fool
Filed under: Investing
Data-storage company CyrusOne is a recent spinoff from regional telecom Cincinnati Bell . And, like many spinoffs, the company hasn’t garnered much attention from the market — yet. Recently announced was a near 12% passive stake in the company by Mick McGuire’s Marcato Capital. McGuire is a former Pershing Square analyst and has quickly racked up a strong reputation in the value world. According to McGuire, CyrusOne has best-in-class return on assets yet trades at a discount to its data-center peers. Should you jump onboard this spinoff before the market takes notice?
Favorable metrics
It doesn’t take a genius to determine that data-storage infrastructure needs will only rise in the coming years. According to Gartner Research, Big Data is expected to grow 800% over the coming years. This company’s management firmly believes that data-center infrastructure is lacking and, where it exists, is inefficient. Hoping to change that, CyrusOne owns and operates 24 data centers in the U.S. and abroad. While a respectable start to the recent market entrant, its footprint leaves plenty of runway for robust growth where management sees opportunity.
As far as financial results go, the numbers are in line with management’s expectations for growth. Revenues were up 21% in the recent quarter, and up 22% for the year. Funds from operations, the go-to metric for a REIT, were up 17% for the quarter and 19% for the year. The company has plenty of existing room for expansion this year — 140 acres for construction and more than 800,000 net rentable square footage. With most metrics pointed toward big growth, why does the company trade at a discount to peers?
The why, and the why-it’s-OK
One thing (besides a negative bottom line last quarter) that may be deterring investors and analysts is the company’s debt load — which at year’s end was more than its market cap at $540.7 million. Pro forma IPO proceeds bring that debt level down to $203.6 million, giving the company a pro forma IPO debt leverage-to-EBITDA ratio of 1.8.
For comparison, look at Equinix . Though a much bigger company, Equinix operates in a very similar fashion (it’s a data-center REIT), and with even greater debt ratios, yet it trades at an EV/EBITDA of 16. CyrusOne trades at less than 10 times the same ratio. There is also a large disparity in price-to-book, which is more relevant for asset-heavy companies. Equinix trades at a P/B of 4.52, while CyrusOne is just under 0.9.
If CyrusOne were to correct toward Equinix’s multiples — though not all of the way, given that I find the company to be richly valued — we’re looking at a double-digit gain in stock price, without taking into account dividends.
Investors interested in the moves of value-investor gurus may want to take a second look at the underfollowed, and potentially undervalued, CyrusOne.
More from The Motley Fool
With the U.S. relying on the rest of the world for such a large percentage …read more
Source: FULL ARTICLE at DailyFinance
By Reuters
Filed under: Company News, JC Penney
By Svea Herbst-Bayliss and Katya Wachtel
BOSTON/NEW YORK – Two institutional investors with William Ackman‘s $12 billion hedge fund plan to reach out to the manager to get more information about the firm’s big bet on ailing retailer JC Penney (JCP), whose stock has dropped 21 percent this year.
Officials with two state pension funds that, combined, oversee assets of more than $120 billion told Reuters they want Ackman to give them more information about Pershing Square Capital Management’s portfolio and to say more about the long-range plan for turning around JCPenney’s fashion lines.
The pension officials did not want to be identified because they had not yet set up their meetings with Ackman. The manager, whose fund is sitting on a roughly $500 million paper loss in JCPenney stock, declined to comment.
It’s not uncommon for pension managers and institutional investors to seek a private meeting with hedge fund managers, especially when a big bet or a portfolio is underperforming.
The move by two of Ackman’s investors is an indication that some investors are growing uneasy with Pershing Square‘s stake of 39 million shares in JC Penney, which the hedge fund began amassing in 2010.
“People are reading a lot about Bill Ackman these days and have questions, and while these kind of hedge funds can’t speak to everyone, keeping their very largest clients informed will have benefits,” said Don Steinbrugge, managing partner at investment consulting firm Agecroft Partners LLC, in Richmond, Virginia.
Pershing Square is up 3.6 percent for the year through February, compared with a 2.8 percent gain for the broader $2.6 trillion hedge fund industry.
The pension plan officials said they are also concerned about Ackman’s other very large and public bet -an estimated $1 billion short position in shares of nutritional supplement company Herbalife. Ackman is betting that Herbalife will be exposed as an unsustainable pyramid scheme and the stock will collapse. He currently has a $200 million gain on that bet.
Billionaire investor Carl Icahn has taken a large stake in Herbalife (HLF) and has engaged in a very public war of words with Ackman over the company.
Meanwhile, at least one prominent hedge fund manager is beginning to line up against Ackman on the short side on JC Penney. Reuters reported last week that York Capital and Morgan Stanley (MS) are shorting the debt of JC Penney, where Ackman sits on the board.
Earlier this week, market speculation that Ackman’s handpicked CEO Ron Johnson might be leaving briefly pushed JC Penney shares up 5 percent on Tuesday.
But not all investors are pushing for Ackman to talk more about JC Penney. Given the fund’s strong track record over the years and current gains, several investors said they are very happy with Ackman and his team.<br …read more
Source: FULL ARTICLE at DailyFinance
By Eric Volkman, The Motley Fool
Filed under: Investing
Activist investor Bill Ackman’s Pershing Square Capital says it is pleased by a consumer advocacy group’s request for an investigation into the business practices of Herbalife .
The group, the National Consumers League, on Tuesday said it had asked the Federal Trade Commission to launch a probe into allegations — made by Ackman and others — that Herbalife operates what is tantamount to a pyramid scheme. The National Consumers League describes itself on its website as a private, nonprofit advocacy group representing consumers on marketplace and workplace issues.
It said in its letter to the FTC that it had recently met separately with representatives of Pershing Square, the Direct Selling Association, and Herbalife. “We believe that only the Federal Trade Commission has the resources and expertise to investigate …” the group wrote.
In its statement, Pershing Square said that “We are pleased that the National Consumers League, the nation’s oldest and one of the most respected consumer protection organizations, has requested that the FTC launch an investigation of Herbalife. We believe that a thorough investigation of Herbalife will reveal it to be a pyramid scheme that has harmed millions of consumers in more than 80 countries around the world.”
The article Ackman’s Firm Applauds Group’s Call for Herbalife Probe originally appeared on Fool.com.
Fool contributor Eric Volkman has no position in Herbalife. The Motley Fool has the following options: Long Jan 2014 $50 Calls on Herbalife Ltd.. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
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Source: FULL ARTICLE at DailyFinance
Filed under: U.S. Government
In a press release this morning, the National Consumers League (NCL) called on the Federal Trade Commission (FTC) to “investigate recent allegations that the multi-level marketing company Herbalife [Ltd. (NYSE: HLF)] is, in actuality, a sophisticated pyramid scheme.” The NCL is seeking an examination both of the charges leveled against Herbalife by Pershing Square Capital Management and its chief, William Ackman, and Herbalife’s response to those charges.
In its letter to the FTC, the NCL notes:
Pershing Square‘s research suggests that Herbalife’s business practices may run afoul of many of the “red flags” of pyramid scheme activity in NCL‘s guide.
For its part, Herbalife responded to the NCL‘s letter in a statement to The Wall Street Journal:
We regret that the National Consumers League has permitted itself to be the mechanism by which Pershing Square continues its attack on Herbalife. If anything, it is Pershing Square that should be investigated by appropriate authorities. Its actions are motivated by a reckless $1 billion bet against the company based on knowingly false statements about Herbalife.
So far Carl Icahn has not weighed in, but don’t be surprised if the activist investor raises his stake in Herbalife again.
Ackman, as might have been expected, praised the NCL:
We are pleased that the National Consumers League, the nation’s oldest and one of the most respected consumer protection organizations, has requested that the FTC launch an investigation of Herbalife. We believe that a thorough investigation of Herbalife will reveal it to be a pyramid scheme that has harmed millions of consumers in more than 80 countries around the world.
We’ve said before that Ackman’s goal here has got to be to force the FTC to launch an investigation into Herbalife. If that happens, his short bet against the company will pay off. The outcome of such an investigation would hardly matter.
Shares of Herbalife are down about 2% at $39.60 in a 52-week range of $24.24 to $73.00.
The NCL letter is available here.
Filed under: 24/7 Wall St. Wire, Activist Investor, Food, Law, Regulation, Shareholder Issues Tagged: HLF
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Filed under: Rumors, Industry News
CNBC reported a rumor that a block of J.C. Penney Co. Inc. (NYSE: JPC) stock was for sale, with the transaction represented by Deutsche Bank. The Wall Street Journal claims the seller is Vornado Realty Trust. Its chief, Steve Roth, sits on the J.C. Penney board. But the facts have not been confirmed and may be wrong for several reasons.
The first set of potential mistakes centers around which shareholder may be the seller. Apparently seven shareholders have enough stock to dump the 10 million shares in question. These include Vornado, Pershing Square — which is J.C. Penney’s largest shareholder and a firm controlled by J.C. Penney board member Bill Ackman — and Dodge & Cox. Under any circumstance, it would be odd that a board member, in this case Roth, would so publicly break with the company and continue to be a board member.
What also may or may not be true is the price at which the shares are being sold. Media reports put that amount at $16.40 to $16.60 a share. That number could be off for a number of reasons, not the least of which that J.C. Penney shares dropped below $16 after hours yesterday. If Vornado, or any other shareholder, wants to dump a large block, it will not be at $16.60
Finally, Deutsche Bank may not represent the seller of the shares. Journalists covering the rumor may have missed the fact that several investment banks have may have joined in an effort to peddle the shares. Or, if the shares are not for sale, no investment bank is involved at all.
The J.C. Penney rumor is similar to others that race around Wall St. fueled by the media. News outlets want to be early to market with “news” which, in the haste, may turn out to be no story at all. Perhaps some portion of the story is correct, but most of the facts are not.
Filed under: 24/7 Wall St. Wire, Corporate Governance, Rumors Tagged: JCP
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During their epic CNBC showdown, hedge fund manager William Ackman almost seemed to be daring Carl Icahn, saying “he can try to scare my investors, which it sounds like he is attempting to do. We take prudent risk at Pershing Square.” …read more
Source: FULL ARTICLE at Forbes Latest
By GuruFocus, Contributor After fellow activist investor, Daniel Loeb set off the media earlier this week with his declaration to obtain a long position in Herbalife (HLF), a company that Pershing Square’s Bill Ackman just shorted weeks ago, corporate raiding Guru Carl Icahn has been reported yesterday afternoon of joining Loeb in taking […]
Source: FULL ARTICLE at Forbes Latest
