Wednesday was a big day for activist hedge fund manager Bill Ackman. Unfortunately for him, it wasn’t particularly good for his portfolio.
Shares of retailer J.C. Penney Company, Inc. (NYSE:JCP) plunged late Wednesday after The New York Post reported that CIT had stopped financing the company’s small manufacturers, while Herbalife Ltd. (NYSE:HLF) surged on reports that George Soros had taken a stake.
“J.C. Penney is having credit problems”
According to The New York Post‘s report, CIT no longer feels comfortable extending financing to J.C. Penney Company, Inc. (NYSE:JCP)’s small manufacturers. This decision was prompted by a meeting with Penney’s management — a meeting that left CIT uneasy with J.C. Penney Company, Inc. (NYSE:JCP)’s financial situation.
If that’s the case, then the 10% sell-off in J.C. Penney Company, Inc. (NYSE:JCP) shares would be justified. The company’s upcoming quarter could be weak, and the retailer’s very survival could be in doubt.
The New York Post’s track record
But the J.C. Penney Company, Inc. (NYSE:JCP) report remains only a rumor at this point, and The Post didn’t even name its sources. Admittedly, the paper rarely does, and has a mixed track record when it comes to stock-related rumors.
Last August, The Post said both Electronic Arts and Coinstar (now Outerwall) were “attracting private equity interest” — both companies remain public today. Early in July, it prompted a sell-off in shares of SodaStream when it reported that the company had tried (and failed) to sell itself. That created a great buying opportunity — SodaStream rallied over 11% on Wednesday after reporting an impressive quarter.
Yet, it hasn’t been all bad. To its credit, The Post said Saks was exploring a sale back in May — the luxury retailer was purchased on Monday.
The Herbalife battle
But what’s most interesting about the J.C. Penney rumor is that it comes on a day when Herbalife Ltd. (NYSE:HLF) was getting squeezed higher.
Hedge fund manager Bill Ackman is involved in both J.C. Penney Company, Inc. (NYSE:JCP) and Herbalife Ltd. (NYSE:HLF). As of its last filing, his firm Pershing Square owned roughly 40 million J.C. Penney shares, nearly 6% of the overall portfolio.
Pershing Square also has a big bet against Herbalife. It’s short 20 million shares, about 20% of the float. Despite the fact that Herbalife Ltd. (NYSE:HLF) has more than doubled since its December low, Ackman says he still hasn’t covered a single share.
The multi-level marketer moved even higher on Wednesday after CNBC reported that legendary investor George Soros had taken a big stake in the firm. Shares closed up more than 9%.
But, according to Fox Business, Ackman is calling foul. His legal representatives have contacted the SEC, alleging that Soros’ fund could be engaged in stock manipulation.