Billionaire Bill Ackman’s Recent Moves: Citigroup, Kraft, PG

PERSHING SQUAREBill Ackman is a billionaire activist investor who has turned around companies like McDonald’s Corporation (NYSE:MCD), while seeing some less successful activist investments in Target Corporation (NYSE:TGT) and Borders Group go awry. His Pershing Square fund returned 29.7 percent in 2010. The fund holds only a few different equities that Ackman believes he can turn around via higher voting status or membership on the board of directors.

On August 14, Pershing Square released its 13F, the document that discloses its holdings. Since Ackman holds many stocks long-term as he waits for a pick-up in their business, I will review some of the strategies for his holdings. Many of his thoughts are detailed in his letter to investors.

The top of the list is still the Canadian Pacific Railway Limited (NYSE:CP), of which Pershing Square owns 24 million shares (flat since the first quarter). In the post-war-with-board aftermath, Bill Ackman has turned nearly the entire upper management over, and Pershing’s recommendation for interim CEO, Steve Tobias, has taken the reigns. Ackman’s second quarter investor letter has a refrain that underscores his approach: “We purchased stock in CP from shareholders who had given up on management.  We bought with the belief that we could catalyze a change in management.” As of the end of 2011, Ackman had pumped up his stake in Canadian Pacific Railway Limited by about 4 times to its present levels. Voilà: it has returned 25 percent year-to-date.

Another headliner is his stake in J.C. Penney Company, Inc. (NYSE:JCP), totaling about 39 million shares. With the appointment of a new CEO, Ron Johnson (a former Apple Senior Vice President of Retail Operations), the company has already put forth a new discount structure. Management has also nimbly changed problematic approaches—for example, Johnson has re-instituted the use of the word “sale” to describe promotional events. The jeans boutiques at J.C. Penney stores will soon have a “Genius Bar” feel, outfitted with a minimalist design and iPads. A company that owns 49 percent of its stores, J.C. Penney is seemingly looking to make its concept echo some of its higher-end competitors. Nordstrom, Inc. (NYSE:JWN), for instance, already has the “boutique” concept in place that gives individual sales associates latitude to run each section of the store in an individualized fashion. This contrasts with the former J.C. Penney Model of “centralized customer service” stations, which inevitably led to amorphous seas of merchandise that were unkempt and, eventually, severely marked down.

A new move for Pershing Square was the initiation of a position in The Procter & Gamble Company (NYSE:PG) with a total value of $1.8 billion, or about a 1 percent stake. This comes after the fund sold its entire stake in Kraft Food Inc (NASDAQ:KFT). The Procter & Gamble Company board affirmed unanimously in July that it would be standing behind its CEO Bob McDonald, and Ackman has indicated that he is interested in sharing ideas with the P&G executive.

In July, the fund reported that it sold much of its stake in Citigroup Inc. (NYSE:C) for a $400 million loss. Once the Libor interest rate fixing scandal broke, and after JPMorgan Chase & Co. (NYSE:JPM) reported significant losses, Ackman decided to pull the “rip cord.”

The alcoholic spirits company Beam Inc. (NYSE:BEAM) remains in the Pershing Square portfolio. General Growth Properties Inc (NYSE:GGP), a holding that has made Ackman quite a bit of cash of the past few years, also stays put through the second quarter. General Growth Properties Inc is up 24 percent year-to-date. The fund also maintains its position in the real estate and agricultural company Alexander & Baldwin Inc (NYSE:ALEX) and in Howard Hughes Corp (NYSE:HHC).

Along with others like Dan Loeb, Ackman knows how to affect change in a struggling company. Critical to his investment thesis is his own confidence and power to remove or sway management—attributes that worked to his benefit in skirmishes with Canadian Pacific and past holdings.