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Industry Updates

Ackman shops for JC Penny and Fortune profits

Monday, October 11, 2010
Opalesque Industry Update: Billionaire and activist investor William Ackman of Pershing Square Capital Management is in the mood for shopping for profit.

Various media reports over the weekend indicated that Ackman is betting huge on consumers, particularly JC Penney and Fortune Brands Inc., making him the largest investor in both companies.

News that Ackman snapped up 39 million shares ($900m) of JC Penney saw shares of the department store chain rally on Friday, reported the New York Post. The move made Ackman the biggest single shareholder in the retail store with at least a 17% stake.

Also last week, real-estate mogul Steven Roth of Vornado Realty Trust, revealed that his firm had also upped its stakes in JC Penny, and said that it had discussed plans for the retailer with Ackman.

These talks were confirmed by Pershing Square in its filing with the SEC, which said the two sides “intend to consult with each other in connection with their respective investments in the common stock.” Although it clarified that Ackman’s firm has no control over Vornado’s stake, according to a Bloomberg report.

Ackman is known to buy firms that he sees as undervalued, particularly focusing on the retail, restaurant and real estate industries. Previously, he launched an unsuccessful bid to convince investors of Target Corp. maximize value by proposing to spin-off underlying real-estate assets into a separate company.

According to the New York Post, speculations are ripe that Ackman and Vornado would try to plot a similar scheme with JC Penney.

Leah Hartman, senior vice president and retail analyst at CRT Capital Group LLC, in Stamford, Connecticut told Bloomberg, “There is a lot of real estate and historically he’s been a real estate-focused activist. It certainly is a company that we see value in.”

Fortune Brands too
Also last Friday, Pershing Square confirmed it bought an 11% stake in Fortune Brands, maker of Jim Beam whiskey, Moen faucets and Titleist golf club. Ackman said he believes Fortune shares were undervalued and he intends to discuss the issue with the firm’s board and other shareholders.

Industry observers say Ackman’s latest move is a reflection of the activist investor’s confidence in the U.S. economy, especially in the housing market. Sales in Fortune’s household and hardware business are indication of the health of the U.S. housing market industry, said the Wall Street Journal.

The report added that industry watchers have long been eyeing Fortune for a possible break-up, with the golf, spirits and household businesses spun off or sold. Fortune’s spirits unit is a potential target for alcohol companies, and the firm will likely use the money to be raised in the break up to shore up its profits.

The Journal also said the slump in the U.S. housing sector has hurt Fortune’s home products division, which manufactures faucets and cabinets. However, that unit has recently introduced cost cutting measures and has seen profits rise again. It also benefited from the improving housing market sector from the U.S. homebuyer tax credit. The spirits business has shown more resilience during the financial crisis.

As with JC Penny, shares of Fortune Brands Inc., jumped nearly 8% on Friday after news that Ackman , raised his stakes in the firm.

Fortune’s shares rose $4.04, or 7.8%, to $56.04 during midday trading. The stock has traded between $37.05 and $58.92 during the past 52 weeks. In July, the company reported that its 2Q profits more than doubled because of rising revenue and decline in costs.
- Precy Dumlao
PD

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