• Jeff Matthews

“The New JCP”: Insider Sells, Chumps Buy

The most inadvertently amusing rumor we’ve heard since—well, since the rumor that Richard Schulze had plenty of backers to lever up Best Buy (reported repeatedly, and wrongly, by the Minneapolis Star-Tribune, as detailed here)—was today’s breathless rumor that JC Penney was either going to be put up for sale, or its CEO Ron Johnson, who lost his considerable Apple-related mojo trying to turn around the aging department store chain, was going to be fired.

Here’s how Briefing.com reported it at 3:11 p.m. E.S.T.:

J.C. Penney seeing pop higher on volume (15.35 -1.38)

Move being attributed to speculation that directors could push for sale of company or push to replace CEO.

What made this rumor so amusing is the fact—apparently oblivious to the rumor-mongers trying to pump up their stock—that one of the very same directors supposedly pushing for sale of the company had just sold 10 million shares of his company’s JC Penney stock in a “get-me-out” kind of trade you don’t see very often, especially from insiders.

According to Bloomberg, Deutsche Bank handled the block after market close last night for Vornado, whose CEO, Steven Roth, is one of the JC Penney directors most responsible for bringing in Ron Johnson in the first place. (And they handled it very well, at that, getting $16.40 for shares whose last trade on today’s close was not quite $15.)

What makes the Vornado sale even more interesting than just being a honking big insider sale is that Roth’s presence on the JC Penney board provided support to JC Penney’s shares through all the ups and downs (mostly downs) of its turnaround.

After all, with Vornado one of its biggest shareholders and Roth one of its biggest-mouthed and most money-making directors, Penney shareholders could ignore $4 billion of annual sales and $2 billion of gross profit dollars evaporating while customers fled to Macy’s and Target, by daydreaming about a happy ending: to whit, that JC Penney would turn itself into a high-P/E REIT like Vornado, and shareholders would live happily ever after.

One more thing that made the sale interesting is that Vornado didn’t need to sell. This wasn’t a margin call like the Bass Brothers’ sale of Disney stock a couple decades back (look it up, kids), or, more recently, Aubrey McLendon’s 2008 margin call in Chesapeake. No, Vornado appears to have wanted to sell.

Now, we here at NotMakingThisUp don’t think the whole story at JC Penney (or “JCP” as its new overseers mistakenly took to calling it in ads despite the fact that the target JC Penney customer has no notion of stock tickers) is that Ron Johnson alienated a whole bunch of customers, many of whom may never come back. We think the whole story would also take a hard look at what happened before he arrived, and how, exactly, the previous management team ran the thing before Ron Johnson even walked in the door (big on share repurchases for Wall Street types, short on reinvestment in the business for the customers).

Still, the idea that JC Penney will now be sold—after a key insider, who would probably know if something was brewing, takeover-wise, blew out 10 million shares of stock—makes this the most amusing rumor we’re heard since the Best Buy nonsense.

What we really have here is a case of massive insider selling, and what looks like chumps buying.

And a whole lot of ‘em, at that.


Jeff Matthews

Author “Secrets in Plain Sight: Business and Investing Secrets of Warren Buffett”

(eBooks on Investing, 2012) Available now at Amazon.com


© 2013 NotMakingThisUp, LLC

The content contained in this blog represents only the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business by Mr. Matthews: all inquiries will be ignored. And if you think Mr. Matthews is kidding about that, he is not. The content herein is intended solely for the entertainment of the reader, and the author.

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The content contained in this blog represents only the opinions of Mr. Matthews. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. The content herein is intended solely for the entertainment of the reader, and the author.

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