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Jana and Farallon shopped at J.C. Penney in third quarter

Svea Herbst-Bayliss
Thursday, 14 Nov 2013 | 3:10 PM ET

BOSTON, Nov 14 (Reuters) - Retailer J.C. Penney drew two prominent new institutional shoppers in the third quarter even as an ambitious overhaul fizzled and its stock price dropped.

Hedge funds Jana Partners and Farallon Capital Management Group took positions in the ailing department store operator.

Barry Rosenstein's Jana Partners and Farallon, founded by Tom Steyer, each bought 500,000 shares in the Plano, Texas-based company during the quarter, regulatory filings made with the Securities and Exchange Commission on Thursday show.

Two one-time backers of the company had second thoughts, however. Richard Perry's Perry Capital sold 2 million shares, leaving him with 10 million shares at the end of the quarter. And Tiger Consumer Management liquidated its entire position, 5.43 million shares.

In April, the company in April parted ways with Chief Executive Ron Johnson, who after 17 months on the job failed to win over shoppers and investors with his everyday-low-price strategy, and rehired former CEO Mike Ullman to revive the company. Johnson was known for his previous success as chief of Apple Inc's retail unit.

While Jana Partners' and Farallon's stakes make up only a tiny fraction of the total holdings at each fund - 0.05 percent at Jana Partners and 0.09 percent at Farallon - the news is being widely followed because J.C. Penney, more than many other stocks, had become a battle ground for the world's biggest hedge funds.

William Ackman's Pershing Square Capital Management waged a long but largely unsuccessful campaign to revive the retailer and had expected its share price to go up. But plenty of other hedge funds were betting against a turnaround and shorting the stock for months.

The battle over the retailer came to a head in August and September when Ackman, J.C. Penney's biggest shareholder, stepped off the company's board and in one fell swoop sold his entire 17.78 percent stake of 39 million shares at the end of August, incurring a loss of roughly $500 million.

Then the company said it would raise fresh capital, an about-face after Ullman said he didn't see the need to raise fresh money for the rest of the year, further shaking sentiment. During the third quarter the share price plunged 48 percent.

The regulatory filings, which are required of money managers whose investment firms oversee more than $100 million in assets, do not say when Jana or Farallon bought the shares, stating only that they held them on Sept. 30. The filings are required to made 45 days after the end of the quarter.

The shares traded at $8.67 on Thursday afternoon, roughly flat from the end of the quarter, falling in early October and then recovering in subsequent weeks.

To be sure, J.C. Penney found freshly committed backers in late August when Ackman cashed out.

Richard Perry's Perry Capital and George Soros' Soros Fund Management were among the investors purchasing shares that Ackman sold, sources familiar with the trades said. Also Larry Robbins' Glenview and Kyle Bass's Hayman Capital held the shares recently.

How some of these managers, particularly Soros, responded as the stock price kept falling is unclear, because many have not yet filed their so-called 13-F reports.

One fund, however, clearly had a dramatic change of heart. Tiger Consumer Management, which had 3.27 percent of its holdings invested with J.C. Penney, dumped all of its 5.43 million shares during the third quarter. In the second quarter, when after Johnson was pushed out as CEO, Tiger Consumer raised its stake by buying 2 million shares.

(Reporting by Svea Herbst-Bayliss; Editing by Steve Orlofsky)

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