At least three Am Law 100 firms are advising on a deal that sees Pershing Square Capital Management’s William Ackman unload his roughly 18 percent stake in struggling retail giant J.C. Penney Corp., which has secured investments from rival hedge fund managers.
Ackman’s high-profile boardroom dispute with the management of J.C. Penney last month led him to exit his investment and lose more than $400 million in the Plano, Texas–based company, which has been seeking to modernize its traditional department store operations by branching out into e-commerce.
Earlier this year, J.C. Penney ousted Ackman favorite and former Apple executive Ron Johnson as its CEO after his turnaround efforts fell flat and alienated longtime customers. J.C. Penney installed Johnson’s predecessor, Myron “Mike” Ullman III, to head on an interim basis one of the nation’s largest apparel and home furnishing companies.
Ackman resigned from J.C. Penney’s board in mid-August after failing to convince management that the company should shift its priorities to cater to a more upscale customer base. With Ackman’s J.C. Penney stake valued at $12.60 a share, the sale meant the feisty hedge fund magnate had lost more than half of his initial investment in the company he bought into in 2010 at roughly $25 a share.
Ackman sold his stake last week for $492.4 million to Citigroup Global Markets, which as underwriter began marketing the shares to other investors. Davis Polk & Wardwell corporate partner Richard Truesdell Jr., and tax counsel Gregory Hannibal led a New York–based team from the firm advising Citi that includes environmental counsel Loyti Cheng and associates Ryan Mitteness, Amy Turner, and Cherie Yang.
On Tuesday, various news outlets reported that hedge funds like Glenview Capital Management and Hayman Capital Management had picked up sizable stakes in the retailer.
Christopher Kirkpatrick, a former Haynes and Boone partner serving as general counsel for Hayman, did not return a request for comment on whether the Dallas-based hedge fund retained outside counsel for its investment in J.C. Penney. Hayman, headed by billionaire J. Kyle Bass, holds a 5.2 percent stake in the company.
Glenview, backed by billionaire Larry Robbins, has accumulated a 9.1 percent stake in J.C. Penney valued at roughly $255 million. Mark Horowitz, chief compliance officer and general counsel for New York–based Glenview, also did not return a request for information on whether the fund relied on outside counsel.
Akin Gump Strauss Hauer & Feld has previously advised Glenview on other matters—such as its 14.6 percent stake in Health Management Associates—but the firm had no role on the fund’s investment in J.C. Penney.
Other funds with significant investments in J.C. Penney include George Soros's Soros Fund Management, which increased its holdings in the company last month, and fellow billionaire Richard Perry's New York–based Perry Capital LLC, which has recently raised its stake in the retailer to 8.6 percent. (Michael Neus is a managing partner and general counsel of Perry Capital, while the Soros Fund's top in-house attorney is Armando Belly.)
Kirkland & Ellis corporate partner Stephen Fraidin, a veteran dealmaker and frequent legal adviser to Ackman and Pershing Square, took the lead for the New York–based hedge fund on the sale of its stake in J.C. Penney along with partner Christian Nagler and associate David Curtiss. Kirkland and Fraidin advised Ackman in late July when Pershing Square bought a 9.9 percent stake in industrial gas company Air Products and Chemicals. (Pershing Square’s chief legal officer is Roy Katzovicz.)
J.C. Penney has turned to longtime legal adviser Skadden, Arps, Slate, Meagher & Flom for counsel on its battle with Ackman, and the firm also advised the company last month when it adopted a shareholder rights plan—commonly known as a “poison pill”—to ward off potential hostile bidders after reporting its sixth straight quarterly loss.
Peter Krupp, cohead of Skadden's corporate transactions practice, is leading a Skadden team for J.C. Penney that includes M&A partner Charles Mulaney Jr., capital markets partner Gregg Noel, and corporate counsel Troy Vigil.
The Am Law Daily reported three years ago on Skadden’s previous poison pill efforts on behalf of J.C. Penney at the time Ackman acquired his initial stake in the retailer. (Earlier this year Skadden M&A partner Richard Grossman, who is part of a team from the firm advising J.C. Penney at the time, spoke with The Wall Street Journal about his work defending against activist investors like Ackman.)
Earlier this year, J.C. Penney and Skadden sued bondholders to prevent them from claiming the company had defaulted on its bond agreements, which would have caused $3 billion in debt to become due. In March, the bondholders, represented by Brown Rudnick, rescinded their $326 million default claim in Delaware Chancery Court.
U.S. Senate records show that New York–based Constantinople & Vallone received $30,000 from J.C. Penney last year for its work on the Market Place Fairness Act, proposed legislation that will enable state governments to collect sales taxes from retailers without a physical presence in their state.
Traditional big-box retailers like J.C. Penney, Best Buy, and Barnes & Noble are supporting the legislation as a means of leveling the playing field with online competitors like Amazon. J.C. Penney let go of 2,200 employees earlier this year amid falling sales.