RBS Partners, an affiliate of Edward Lampert's ESL Investments, disclosed on Tuesday that it owned 15.24 million shares of Citigroup worth $782.6 million as of March 31 this year. So why is Eddie Lampert buying Citigroup and what does it mean for CEO Chuck Prince?
That's what investors, Wall Street analysts and Prince himself must be thinking right now as the news breaks that the veteran hedge fund investor has a fairly sizable stake in the massive financial-services conglomerate, whose stock price has been floundering of late.
According to a regulatory filing, Lampert has been slowly accumulating shares of Citigroup over the past year. He had around 10 million shares at the end of 2006, and by the end of March, his stake grew to 15 million shares.
A spokesman for Lampert declined to comment, but one thing is certain: Lampert is a value investor, which means he thinks that shares of Citigroup are worth more than they are currently trading.
Still several questions remain. How does Lampert think shares of Citigroup will break out of its slump? Does he think the firm's stock will outperform once the cost-cutting plan by current CEO Prince begins to take effect, or is he buying the stock to pressure current management to change course, and begin selling off some units, like its brokerage unit, as some investors have demanded to increase share price? Or is he buying stock to push for a management change at the top of Citigroup as other have suggested?
William Smith, of Smith Asset Management and a critic of Prince, believes Lampert will not be a passive investor. "This guy is in there to make money and the only way to make money is for the company to change course," Smith told CNBC.
Citigroup had no comment, but last Friday more than 70 million shares of Citigroup stock traded, sparking speculation that a major investor was dumping shares. But for every sell order, there must be someone buying, and it appears those who bought shares of Citigroup lucked out.
Citigroup closed at , but rose $1.06 to $53.85 in after-hours electronic trading following disclosure of the stake.
Charles Prince, Citigroup's chief executive, has faced pressure from many investors to generate faster growth and boost a stock price that has lagged many peers.
Lampert is chairman of Sears Holdings, the parent of Sears and Kmart. Known as an active investor, Lampert orchestrated Kmart's emergence from bankruptcy in 2003.