Recent stock market volatility has had at least one beneficial effect on the retail sector—it’s spurred investment in some publicly-traded retail chains.
Amid the brutal selling, two large national retailers—department store JC Penney and bookseller Barnes & Noble—reached deals to receive sizable equity infusions. While driven by the fact that the shares for each firm were trading at deep discounts, the moves also illustrate investors’ faith in the long-term prospects for the two chains.
On Friday, Bill Ackman-led hedge fund Pershing Square Capital got approval from JC Penney Co.’s board of directors to up its stake in the retailer from its current 16.5 percent. Pershing Square will make the investment through a “synthetic long position” to make its exposure equivalent to 26.1 percent. A synthetic long position typically refers to a derivative contract in which the investor receives cash payments if a company’s shares rise. Pershing actually reduced its voting rights to 15 percent of shares outstanding.
JC Penney has a restriction in place preventing shareholders with more than 10 percent of its stock to buy additional common shares without its board's approval.
The news about Pershing’s investment in JC Penney came a day after media conglomerate Liberty Media Corp. signed a deal to buy a 16.6 percent stake in bookseller Barnes & Noble for $204 million. Liberty’s investment will be made through the purchase of convertible preferred shares equal to about 12 million common shares or 17 percent of Barnes & Noble stock. The deal values Barnes & Noble shares at $17 apiece.
Barnes & Noble has been looking for a buyer since last summer, and Liberty Media has been the only one to make a bid for the retailer this spring, valuing Barnes & Noble’s stock at $17 per share in May and offering to take a 70 percent stake in the retailer. It has since abandoned the ambition to buy the bookseller outright, opting instead for the smaller stake.
The switch to a smaller investment likely reflects Liberty’s desire to limit its risk in view of the challenges the book sector faces from the popularity of digital e-readers, says Howard Davidowitz, chairman of Davidowitz & Associates Inc., a New York City-based retail consulting and investment banking firm. The fact that ...
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