Hedge fund manager William Ackman, the biggest shareholder in J.C. Penney Co Inc, said on Monday he had sold his entire stake after his campaign to overhaul the retailer failed.

Ackman's Pershing Square Capital Management sold 39.1 million shares, or 18 percent of the company, to Citigroup Inc, which is now offering the shares to other investors, the company and the $11 billion hedge fund said in separate announcements.

The decision by Ackman, who stepped off the board two weeks ago amid a growing rift over corporate strategy, to dump his stake pushed Penney's shares down 2.6 percent to $13 in after-hours trading.

Pershing Square said in a statement Citi's offering of J.C. Penney common stock was priced to the public at $12.90 per share and was expected to close on August 30.

The sale marks the end to Ackman's three-year campaign to breathe new life into the Plano, Texas-based retailer. He recruited a new chief executive to upgrade merchandise and make stores more attractive to shoppers.

But store sales fell 25 percent in the last fiscal year and the company's share price has dropped 32 percent since January.

For Ackman's hedge fund, which had boasted average annual returns of 20 percent over the last decade, the Penney investment weighed on performance, prompting some institutional investors to seek meetings with the manager so he could clarify his plans.

Ackman has lost hundreds of millions of dollars on his bet since first buying the shares when they traded at $20.01.

Last week, Ackman acknowledged that retail investing has not been his strong suit and categorized the Penney investment as one of his fund's three failures, along with failed bets on Borders Group and Target Corp.

BLOCK TRADE

In order to get out quickly, Ackman relied on Citigroup to buy the entire stake in a so-called "block trade" and to then sell it to other investors.

Hedge fund managers including George Soros and Richard Perry already have large stakes in J.C. Penney. It was unclear who might buy the stake that Ackman's funds sold.

"Ackman bought his stake in order to influence the board to make big changes, not as a passive investment. Now it makes no sense to hold the position. It's time to move on to another company," said Erik Gordon, a law and business professor at the University of Michigan.

The 47-year-old billionaire is leaving three years after he built his position and then wooed Ron Johnson to join Penney from Apple Inc and overhaul the company. Johnson was forced out in April with his vision to revive the company in tatters.

Ackman's is now making a complete exit because of a disagreement with the Penney board over strategy, a person familiar with his thinking said.

After Johnson was forced out, the company brought back Myron Ullman, a former CEO, with whom Ackman had disagreements.

Last week, Penney adopted a one-year "poison pill" to prevent any coercive takeover attempts by limiting a single investor's stake to 10 percent.

Analysts widely interpreted the policy as a move by Penney to avoid another distracting fight with an activist investor at a time it is trying to win back shoppers after sales fell hard last year and are continuing to fall this year.