JC Penney ensnared in hedge fund games?February 5, 2013: 12:33 PM ET
JC Penney's latest tangle has many folks speculating about whether there's another hedge fund battle brewing.
The retailer said it received a Notice of Default from law firm Brown Rudnick, which claims to represent an "ad hoc" group who hold more than 50% of JC Penney's bonds due in 2037.
JC Penney says the notice is "utterly without merit" but it's raised speculation as to who is behind this so-called ad hoc group of bondholders. And wouldn't you know it but billionaire activist Carl Icahn's name has been bandied about.
Why Icahn? Well, for one, it's no secret he despises Bill Ackman.
Ackman is a big fan of JC Penney and the retailer's still relatively new CEO, Ron Johnson. You may recall that it was just a couple of weeks ago that Icahn and Ackman took to CNBC in a very public spat over Herbalife (HLF) and other calls.
For now, investors seem willing to give JC Penney the benefit of the doubt. After all, talk is just that ... talk. Oh and it helps that JC Penney says it never borrowed any money from that $1.5 billion credit facility.
After being down quite sharply ahead of the bell, shares of JC Penney (JCP) are up nearly 4%.
StockTwits traders love a roller coaster ride.. but JCP? not so much.
JCP turnaround story getting murkier. Down 3%. Did it default on bond or not? Is Icahn involved in this too? Does he hate Ackman that much?
So many questions, so little time. The stock has since bounced back but the crux of the matter is really that pesky turnaround. Ok, maybe pesky is a bit harsh. And I've previously noted that these things take time, which they do.
The challenge for Ron Johnson will be if the hedgies (i.e. Ackman and Icahn) really do get into a knock down, drag out fight over who's right about JC Penney's prospects.
All retailers have most likely had pretty dismal holiday quarters. In the case of JC Penney, it's been more pronounced as Johnson tries to overhaul how consumers view JC Penney.
In a recent note, Gilford Securities analyst Bearnard Sosnick noted that much of the sales activity in recent months was at the sales racks, which is good for the bargain hunters but could also be a sign of how tough it is to get consumers to pay full price.
$JCP January store checks are "discouraging" & indicate heavy clearance levels and greater than expected comp deterioration - Morgan Stanley
That's not the rosiest outlook but Morgan Stanley also puts forth the possibility that JC Penney's turnaround strategy could kick into high gear and pull sales out of the dumps sooner than expected. Of course, the bear case would have the retailer losing market share and being forced to sharply mark down merchandise to get it moving.
$JCP sales ticking up is like throwing a deck chair off the titanic to lower the weight of the ship
The key point here is acknowledging the difficulty in turning around a retailer in this economy. I don't pretend to be able to read Ackman's brain or actions but if he's in it for the long haul, then maybe he has a point.
Like most things, good things come to those who wait. That's also kind of the basic premise of investing. Most financial advisers will say plan for the long term -- meaning longer than one or two years. And just like there are plenty of naysayers, there are those that say give Ron Johnson a chance. Rome wasn't built in a day.
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