Battle Lines Between JCPenney Board, William Ackman Growing

William Ackman, hedge fund manager and the founder of Pershing Square Capital, JCPenney's largest shareholder

Controversial William Ackman, hedge fund manager and the founder of Pershing Square Capital, JCPenney’s largest shareholder

Plano, TX—Ahead of JCPenney’s second quarter earnings report scheduled for next week, the latest news about the retailer centers around the brouhaha between the company’s board of directors and William Ackman, whose hedge fund is the company’s largest shareholder.

Ackman, who also sits on the board, fired off two letters (which became public) last week blasting the board for not expediting a search for a new chief executive to replace “interim” CEO Myron “Mike” Ullman. Ackman, who is chief executive of Pershing Square Capital Management, urged the board “to take immediate and proactive steps to improve the financial and operational management of the company.”

As part of his solution to the company’s woes, Ackman recommended the board to hire Allen Questrom, who was JCPenney chief executive from 2000 to 2004, as chairman and oust current Chairman Thomas Engibous.

Now Engibous and other members of the board are uniting against Ackman and his actions. In a rebuke to Ackman’s second letter, Engibous called Ackman’s comments “misleading, inaccurate and counterproductive.”

“The Board is focused on the important work of stabilizing and rejuvenating the business,” Engibous said in statement on Friday. “It is following proper governance procedures, and members of the Board have been fully informed and are making decisions as a group. This includes the CEO search process, which is being conducted at an appropriate pace.”

Board Considers Removing Ackman?

JCPenney had fired Heidrick & Struggles, an executive search firm, to find a replacement for Ullman who return to the chief executive position in April following after the board let go CEO Ron Johnson (who had been championed for the position by Ackman). But that search is expected to take several months much to Ackman’s chagrin.

Then The Wall Street Journal reported Sunday that some of JCPenney’s board of directors had a phone conference about the situation with Ackman. With sources calling Ackman a “rogue” director, some said the board even discussed how to remove Ackman.

While several retail analysts have called for Ackman to resign from the board, too, most agree Ackman didn’t violate any laws and calling a meeting of stockholders to vote on him is highly unlikely.

Moving in to support Ackman was another hedge fund billionaire, Richard Perry of Perry Capital which took a 7.3% stake in JCPenney last week.

In a letter to JCPenney’s board, Perry wrote: “We believe that immediately appointing Allen Questrom chairman of the board and Ken Hicks CEO is imperative at this juncture, and we anticipate that the company’s various constituents would be highly supportive of such a change.”

Hicks, who has been Foot Locker’s chief executive since 2009, had served as president and chief merchandising officer at JCPenney. Hicks thus so far has declined comment on the speculation while Questrom said he could consider chairmanship under the right CEO hire and in a non-hostile situation. Questrom, too, had criticized the board for taking too long to name a successor to Ullman.

Adding to the heated situation, Starbucks CEO Howard Schultz, who knows Ullman as a board member of his company, called Ackman’s actions “disgusting.”

“The irony is Bill Ackman has the blood on his hands for being the architect and recruiter of Ron Johnson, and of the strategy. Mike Ullman came back to try and save that company. He is the kind of leader that will rebuild the trust with employees, and if given time, turn things around,” Schultz said Friday.

‘Future Has Reached Critical Inflection Point’

Meanwhile, reports say suppliers predict sales at JCPenney fell by double digits in the second quarter from last year. JCPenney is struggling to turnaround from a $1 billion loss last fiscal year when sales dropped some 25%.

Retail analysts, too, are taking sides on the drama especially in light of the upcoming earnings report.

UBS analyst Michael Binetti, who rates JCPenney’s stock “sell,” said he believes the airing of the board’s grievances isn’t doing the retailer any favors. Binetti predicts a 14% decline in comparable store sales and a 7.6 percentage decline in gross margin when JCPenney reports its second-quarter results next week.

However, Gilford Securities analyst Bernard Sosnick of Gilford Securities, which rates JCPenney a “buy,” said, “From what we see and hear in the stores, corrective actions are working. Traffic has improved, customers are buying on key shopping dates, basic inventories are rebuilt, and clearances are normal, not abnormal as a year ago.”

“The future of J.C. Penney has reached a critical inflection point, with control of the company the topic du jour,” said J.P. Morgan analyst Matthew Boss. “The timing of the public battle couldn’t come at a worse time entering back to school with potential new management unable to materially alter the high volume holiday game plan at this point, but rather disrupt execution.”

 

 

 

 

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Jeff Prine, Editor at Large, Accessories Magazine
Jeff returns as a regular contributor to Accessories magazine. Initially Jeff worked as senior editor at Accessories more than 20 years ago and his love of the industry has followed him until present. Since his tenure here, Jeff has continued to report jewelry, watch and other luxury goods trends as executive editor at Modern Jeweler magazine, fashion director at Lustre, and as contributor on products and trends for consumer and trade publications and websites. In addition to his editorial experience, Jeff also served as an adjunct instructor for accessories merchandising at Fashion Institute of Technology. jeffp@busjour.com

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