J.C. Penney shares fall as Ackman sells stake

• Ackman%27s Pershing Square plans to sell its stake in J.C. Penney
• Pershing Square had been the No. 1 owner of the retailers%27 stock
• Marks the end of Ackman%27s failed efforts to cause positive change at the retailer

Activist hedge fund manager Bill Ackman's plan to reshape J.C. Penney has hit another snag: He's selling.

Ackman's Pershing Square Capital Management on Monday disclosed it's preparing to sell its 39.1 million shares of the retailer, ending the hedge fund's efforts to create profitable change at the chain. The sale was disclosed in an offering notice filed with the Securities and Exchange Commission.

The sale ends a contentious relationship between Ackman and J.C. Penney as the department-store retailer attempted to remake itself in a world dominated by trendier brands and specialty apparel retailers.

Efforts thus far, including the hiring of former Apple retail head Ron Johnson, have largely failed as consumers were turned off by the company's changes, especially the dramatic reduction of sales.

Shares of the stock fell 18 cents, or 1.4%, in very heavy trading to close Tuesday at $13.17, adding to the 1.1% drop on Monday. The stock is down by a third this year.

A statement from Pershing early Tuesday said the fund was offering the shares for sale at $12.90. Based on that price, Ackman would lose about $470 million in the sale, the Associated Press reports.

Some are curious about the method Ackman is using to sell the shares. Rather than selling on the open market himself, he is hiring Citigroup to underwrite and sell the shares. Terms of the deal weren't disclosed. Investors are wondering why Ackman is willing to pay the underwriting fees to sell the stock so quickly. "Ackman is saying he better get out now before it (the stock) is worth less," says Paul Swinand, analyst at Morningstar. Meanwhile, Citigroup may be making the bet it can get a good price after getting a chance to market the shares, Swinand says.

Seeing Ackman sell isn't surprising, as he resigned from the board on Aug. 13. It's Ackman's investment style to use his ownership stakes in companies to get a louder voice in management and decisions.

The departure of Ackman is a major change in the ownership structure of the company. Pershing Square Capital had been the top single investor in the firm, holding nearly 18% of the shares outstanding, says S&P Capital IQ. After the sale, the largest owner will become Perry Capital, with its 16 million shares, or 7.3% of shares outstanding.

Retail expert Faith Hope Consolo says she's not surprised Ackman is selling. "In such a volatile market, it's probably a smart move," says Consolo, chairman of the retail group at Douglas Elliman Real Estate. "The smartest people in retail are divesting themselves of a lot of stock. Everyone wants to protect their downside."

With Ackman out of the picture, that leaves J.C. Penney CEO Mike Ullman with the task of shoring up the company. Penney's earnings report last week was better than expected, even though revenue fell 12% to $2.7 billion. That was an improvement on the 23% revenue drop during the same period last year. The company also said that the first few weeks of the back-to-school shopping season were encouraging.

The company needs to reconnect with its customers through products and offerings they've come to expect, Swinand says. "Now it's about stemming the losses," and getting to positive cash flow, he says. "It's a matter of crawling back."