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Ackman out, drama remains at J.C. Penney

Thursday, August 15, 2013
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Too bad activist investor Bill Ackman threw in the towel: His letters last week critical of the leadership at J.C. Penney Co. offered a reality-TV-like look into the inner workings of the struggling retailer.

But even Ackman, whose hedge fund owns a big chunk of Penney stock, recognized the missives were a distraction, and so on Tuesday resigned from the company’s board of directors.

Ackman’s Pershing Square Capital Management buys into public companies with an eye toward shaking them up and boosting their value. He took a position in Penney beginning in 2010 and as of March this year was its largest shareholder, with a stake of almost 18 percent, according to regulatory filings.

Two years ago, Ackman lobbied for changes in leadership and direction at Penney that resulted in former Apple executive Ron Johnson hired as CEO. Johnson attempted to quickly remake the century-old retailer into a hip, upscale destination by creating branded stores within the store — Sephora, Izod, Joe Fresh — but was fired earlier this year after losing buckets of money.

For fiscal 2012, the company reported a net loss of $985 million. Same-store sales — a measure of retailer health — were off 25 percent as consumers failed to embrace the re-imagined Penney.

And this year has not been better, although, post-Johnson, the company brought back sales policies previously embraced by consumers. For the fiscal first quarter ended in May, Penney reported that losses doubled from a year earlier and sales slipped 16 percent. (Second-quarter results will be released next week.) Johnson was succeeded by Myron “Mike” Ullman, the CEO he replaced in 2011. Supposedly an interim leader, Ullman began making changes that Ackman thought were better left for the next CEO. Also worrisome were the “aggressive inventory purchases and future commitments we are making for later this year and 2014,” Ackman wrote in one of two letters to fellow board members that CNBC, the business news channel, posted online.

Releasing the letters publicly was “admittedly an extraordinary step,” Ackman wrote, something never done in his 15 years of sitting on public company boards. “I think J.C. Penney is at a very critical stage in its history and its very existence is at risk,” he wrote.

In the first letter, posted last Thursday, Ackman expressed concern that the search for a new CEO was taking too long to launch. “We can’t afford to wait,” he wrote.

The second letter, posted Friday, was longer and much more pointed in its criticism.

Ackman said he had lost confidence in Ullman and in the chairman of the board, Thomas Engibous, a former Texas Instruments executive who has been on Penney’s board since 1999.

He questioned the closeness of the two men — boards of directors, after all, are supposed to provide independent oversight of public companies — and decisions that left many directors in the dark. A new chief marketing officer, for instance, was hired “without the board being asked for its consent or even notified,” Ackman’s letter says.

He urged that both men be replaced quickly.

In the end, though, Ackman was the one to leave. A news release from the company quoted Ackman as saying his resignation from the board was “the most constructive way forward” for the company.

Analysts had opined that a prolonged spat could have unnerved vendors and lenders at a financially important time for any retailer: the third- and fourth-quarter selling seasons. And not even Ackman would have wanted that.

Marlene Kennedy is a freelance columnist. Opinions expressed in her column are her own and not necessarily the newspaper’s. Reach her at marlenejkennedy@gmail.com.

 
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