JC Penney Initiates Plan To Thwart Stockholder Takeovers

By Sam Lewis

Struggling department store puts up its financial guard

Tuesday brought about the quarterly earnings for JC Penney (JCP), which despite being dismal, gave a glimmer of hope to the struggling retailer. Thursday, the company’s interim CEO, Mike Ullman, adopted a “poison pill” plan to protect the company against any shareholder takeovers. This move is effective for one year, ending August 20, 2014 and may have bought JCP some time to get back into the black without having to fight battles for control of the company.

The shareholder protection plan would be triggered if any person or group obtains 10 percent or more of the company’s shares. Bill Ackman is excluded from the plan, who holds nearly 18 percent of the company’s stake, along with Vornado Realty Trust, which holds a 6 percent stake in the company and is headed by JCP board member Steven Roth. JCP’s second largest shareholder is Soros Fund Management, holding just over 9 percent of the company, followed by State Street Corporation with 8 percent holding, and Perry Corp, holding 7.3 percent. After Ackman’s resignation from the JCP board, he suggested he may sell his stakes in the company with his resignation. A stock sale agreement was reached on Tuesday between Ackman and JCP.

JCP said the plan was not started in response to any company’s efforts to control the company. Rick Snyder, a retail analyst with Maxim Group in New York, believes the primary goal of the plan was to discourage investors while JCP begins its turnaround. “There is a fear that somebody is just going to come in while things are kind of confused, and in the mix, pick the company off,” he said. “But from management’s perspective, the real focus is just to cool down all the activism to just focus on operations.”

The 111-year-old department store will continue its turnaround strategy of returning to its roots of frequent sales, promotional events, coupons, and basic clothing — all of which were abandoned by ex CEO Ron Johnson. The “poison pill” plan adopted by Ullman is a great idea for the company, which has plenty of other problems on its plate. By instituting the protection of shareholders, Ullman has eliminated a problem, at least for one year.