By David Benoit and Emily Glazer
After a bruising second quarter, William Ackman has taken a
moment to reflect.
In a 20-page letter to investors reviewed by the Wall Street
Journal, Mr. Ackman acknowledged that he has made mistakes, notably
in his investment in retailer J.C. Penney & Co. (JCP), as well
as Borders Group Inc. and Target Corp (TGT).
"Clearly, retail has not been our strong suit," Mr. Ackman wrote
to Pershing Square Capital Management L.P. investors.
But Mr. Ackman remained defiant about the firm's investment in
Herbalife Ltd. (HLF), a nutritional supplement maker.
The letter noted that Pershing funds were "flat" in the second
quarter and stepped back to look broadly at Pershing Square's
investment track record, declaring that in sum, "our successes
vastly overwhelm our failures."
The letter also touched on other investments, stating Pershing
Square has sold a portion of shares in Procter & Gamble Co.
(PG) in order to help fund its new position in Air Products &
Chemicals Inc. (APD). Mr. Ackman said Pershing Square will engage
with Air Product's management and board and is in the initial
stages of those engagements.
On J.C. Penney:
Mr. Ackman said he may eventually sell his 17.7% stake in J.C.
Penney.
"We may choose to exit J.C. Penney after more or less time
depending on developments at the company, the stock price, and the
availability of other investment opportunities."
The stock slid Wednesday, down 3.4% to $13.54.
Pershing Square first took a position in J.C. Penney in August
2010, when shares were trading north of $19. Following a management
change and a year of slumping sales, J.C. Penney changed chief
executives again earlier this year. Mr. Ackman this month pushed
for another change, including taking the unusual tact for a board
member of releasing public letters. He ultimately resigned from the
board, with an agreement that two additional directors would be
named. He reiterated that Pershing Square has "the contractual
right" to appoint an additional director to the board. The company
disclosed last week an agreement with Pershing Square that would
control how any shares would be sold by the investor.
In the investor letter, Mr. Ackman said he released the letters
because he believed it was his "fiduciary duty" and as a way to
protect Pershing Square's investment.
On Herbalife:
Pershing Square is facing large paper losses on a $1 billion bet
that the stock price would fall as the nutritional company has
received investor support from such names as Carl Icahn and George
Soros and shares have risen more than 95% this year.
Mr. Ackman has accused the company of being a pyramid scheme.
The company has denied all charges and fired back that he is
manipulating shares.
"We believe that Herbalife was a good short sale at our cost,
and an even better one at current values and in light of recent
developments," Mr. Ackman wrote. "Our batting average on our active
long investments is 16 out of 19, or 84%, and 4 out of 5, or 80%,
on the short side, with Herbalife in the undecided column."
Mr. Ackman said there are two key ways for Pershing Square's
Herbalife short position to work: regulatory intervention or a
decline in the number of new independent distributors. He cited new
rules the company has since taken, including discouraging loans for
distributors, and the departure of some top sellers to other
companies.
Write to David Benoit at david.benoit@wsj.com or Emily Glazer at
emily.glazer@wsj.com