J.C. Penney Co. (JCP:US) shareholder Perry Capital LLC sold about half of its stake in the struggling retailer after it announced a share offering that diluted investors and pushed down the stock price.
About 84 million shares were sold at $9.65 apiece for proceeds of about $786 million after fees, Plano, Texas-based J.C. Penney said yesterday in a prospectus. Underwriter Goldman Sachs Group Inc. (GS:US) may offer an additional 12.6 million shares under a 30-day option that could push the retailer’s proceeds to about $904 million.
J.C. Penney said last week it would sell the shares, which diluted current holders by about 38 percent, to raise cash amid concerns that it may not have enough liquidity to fund its turnaround. Perry, a New York-based hedge fund, said yesterday, a day after the share offering was announced, that it sold 9 million shares, cutting its stake in the chain by about half.
Since Chief Executive Officer Mike Ullman returned as CEO in April, the department-store chain has borrowed about $3.1 billion to help undo Ron Johnson’s failed attempt to transform it into a destination for younger, wealthier shoppers. Ullman has been adding back merchandise to cater to older women, ramping up promotions and improving customer service in a bid to revive sales during the year-end holiday season, when it generates about a third of its revenue.
J.C. Penney declined (JCP:US) 0.6 percent to $8.75 at the close in New York. The shares have sunk 16 percent from the market close on Sept. 26, the day the offering was announced. That pushed the retailer’s drop this year to 56 percent, compared with a 19 percent gain for the Standard & Poor’s 500 Index.
After the market closed yesterday, the company said the offering would increase the share count by 44 percent if Goldman fully exercises its option. The New York-based investment bank is charging 29 cents a share for handling the offering, which would give it $28 million if all the shares are sold.
Perry, founded by investor Richard Perry, now owns 10 million J.C. Penney shares, amounting to a 3.3 percent stake, the firm said yesterday in a filing with the U.S. Securities and Exchange Commission. It held 19 million shares as of Aug. 30, which was equal to an 8.6 percent stake before the offering.
Perry disclosed its investment in J.C. Penney on Aug. 9, backing activist and director Bill Ackman’s efforts to oust Chairman Tom Engibous and Ullman. The rest of the board stood its ground, saying Ullman was the right CEO to revive the company. Ackman agreed to quit the board after the public clash, and his Pershing Square Capital Management LP sold its entire stake for a $500 million loss.
Perry boosted its stake on Aug. 30, when it bought 3 million shares for $12.90 in Citigroup Inc.’s secondary offering of J.C. Penney shares purchased from Ackman. Perry purchased its initial stake of 16 million shares at an average of $15.70 a share.
Glenview Capital Management LLC is J.C. Penney’s largest shareholder with 20.1 million shares for a 6.6 percent stake, counting the dilution from the offering, according to data compiled by Bloomberg.
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