UPDATE: J.C. Penney, Facing Activist Efforts, Adopts Poison Pill
October 18 2010 - 11:31AM
Dow Jones News
J.C. Penney Co. (JCP) is ratcheting up its defense against
activist investor William Ackman by adopting a shareholder rights
plan that could dilute the influence of Ackman's Pershing Square
Capital Management and Vornado Realty Trust (VNO), which recently
built sizeable stakes in the department-store operator.
The move is J.C. Penney's most aggressive yet in trying to fend
off the overtures of a billionaire investor who has suddenly set
his sights on the century-old retailer.
Under the so-called poison pill adopted by J.C. Penney's board,
all shareholders get a warrant for a preferred share that would
carry the same value and voting power of a common share. This would
make it more expensive for someone like Ackman, who already has a
10% or more stake in J.C. Penney, to acquire more shares. That's
because not only will Ackman, if he wants to increase his stake in
J.C. Penney, pay market price for common shares, but, according to
the plan Penney adopted, he would also have to buy preferred stock
that has an exercise price of $130.
The rights plan is meant to dilute the voting power of an
acquirer so that they cannot vote their slate of directors to the
board, and also suggests J.C. Penney management believes the stock
is worth more, given the retailer's ambitions for growth.
J.C. Penney said it enacted the one-year plan to "promote fair
and equal treatment" of shareholders and "in light of recent rapid
accumulations of the company's outstanding stock."
Poison pills are generally viewed as anti-shareholder as they
are seen as potentially warding off hostile-takeover attempts that
could ultimately benefit stock owners.
One wrinkle is that Vornado only holds a 9.9% stake in J.C.
Penney, according to its last regulatory filing on Oct. 8. The
stake is just beneath the 10% minimum that J.C. Penney set for the
poison pill. "This may suggest that J.C. Penney, whose stores are
located on a number of Vornado properties, wants to keep Vornado
out of the fray and avoid damaging their relationship," said Brian
Sozzi, retail analyst at Wall Street Strategies. "But it also does
not encourage them to do anymore" in terms of buying J.C. Penney
shares.
Two weeks ago, Ackman's hedge fund and real estate investment
trust Vornado reported respective stakes of 16.5% and 9.9% in the
department-store operator. The firms said they intend to work
together and expect to meet with Penney's management, board and
other stockholders about its operations, management and future
plans.
Pershing Square is known for its efforts to shake up retailers.
Vornado, one of the largest U.S. owners of offices and malls, made
a famous bet on bankrupt retailer and Manhattan real-estate owner
Alexander's Inc. in the early 1990s, acquiring a site where the
headquarters of financial-data provider Bloomberg LP was later
built.
Representatives of Pershing and Vornado did not respond to
requests for comment.
Penney's department stores have struggled against Macy's Inc.
(M) and Kohl's Corp. (KSS) in the battle for frugal
shoppers--though Chief Executive Mike Ullman said last month the
retailer expects to see same-store sales improve in the fourth
quarter as traffic is returning to malls.
J.C. Penney shares are down 2.8% to $32.94.
-Matt Jarzemsky contributed to this article
-By Karen Talley, Dow Jones Newswires; 212-416-2196;
karen.talley@dowjones.com
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