Bill Ackman resigned from J.C. Penney’s board after a public fight with his fellow directors, capping more than two years of agitating to remake the retailer that left him with a potential $700 million in losses on his stake in the department-store chain.
Ronald Tysoe, a former vice chairman of Federated Department Stores, now Macy’s, was named to the board and another director will be added in the “near future,” the Plano, Texas-based company said in a statement Tuesday.
The departure lets Chief Executive Officer Mike Ullman pursue a turnaround without internal pressure from Ackman, who was urging the ouster of Chairman Tom Engibous and a speedier search for a new CEO. Ullman and Engibous, who are working to help the retailer rebound from its worst sales year in more than two decades, have the board’s “overwhelming support,” J.C. Penney said.
Ackman’s resignation “doesn’t change the situation on the ground for the company,” said Michael Binetti, an analyst at UBS AG in New York. The move also signals that J.C. Penney’s fundamentals still may be deteriorating because Ackman wouldn’t be acting so urgently if the results were getting better, he said.
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Ackman joined J.C. Penney’s board in February 2011 after his New York-based hedge fund Pershing Square Capital Management amassed a stake in the department-store chain that made it one of the company’s largest investors. He soon pressed to replace Ullman, who had been CEO for more than six years, with Ron Johnson, the executive who helped build Apple’s retail stores.
Johnson, with Ackman’s support, instituted sweeping changes at J.C. Penney, including ending discounting and remaking the stores into collections of boutiques. The strategy flopped with the chain’s customers, resulting in a $985 million loss for the year ended in February as sales plunged 25 percent to the lowest since at least 1987.
J.C. Penney ousted Johnson in April and reinstated Ullman, 66, to stabilize the company. He has revived price cutting and brought back merchandise to attract core customers while shoring up J.C. Penney’s cash balance with a $2.25 billion loan and an $850 million drawdown from a revolving credit facility.
The board began looking for a long-term CEO last month, Engibous said in a letter on Aug. 8. Ackman was pushing to find someone by mid-September since there were only a few candidates, a person familiar with the matter said then. Ackman’s resignation will probably help the search because there will be less interference from the board, Matthew Boss, an analyst for JPMorgan Chase & Co. in New York, who has a neutral rating on shares, wrote Tuesday in a note to clients.
Ackman drew the board’s anger last week by making public two letters asking to speed up the CEO search and later asking to oust Engibous, saying the board wasn’t functioning effectively.
Company fights back
J.C. Penney fought back, saying that the board supported Ullman and Engibous that Ackman’s statements were “misleading, inaccurate and counterproductive.” Management also gained the support of investors Soros Fund Management LLC and Glenview Capital Management LLC, according to people familiar with the situation.
Based on Pershing Square’s filings with the Securities and Exchange Commission and J.C. Penney’s closing price of $13.17 a share Monday, the firm has a current paper loss of about $701.7 million on its investment in the retailer.
Ackman is restricted from selling Pershing’s shares for the time being because he has material nonpublic information as a former director, Daphne Avila, a J.C. Penney spokeswoman, said. That may change once the second-quarter blackout period has ended, she said, without providing a date.
“The addition of two new directors and my stepping down from the Board is the most constructive way forward for J.C. Penney and all other parties involved,” Ackman said Tuesday.
J.C. Penney is scheduled to report second-quarter results, the first full quarter under Ullman, on Aug. 20.
With assistance from Miles Weiss in Washington, D.C.; Tom Keene, Scarlet Fu and Beth Jinks in New York; and Celeste Perri in Amsterdam