JC Penney And Ackman Reach Stock Sale Agreement
Two weeks of turmoil appear to be coming to a close
It looks as if the chaos that unfolded over the last few weeks between JC Penney (JCP) and former JCP board member Bill Ackman will be ending soon. On August 16, the company revealed it has begun a Registration Rights Agreement with Ackman that will allow him to sell his nearly 18 percent stake in JCP.
The filing with the SEC will allow Ackman to make up to four requests with JCP to register the sale of his restricted stake in JCP. The agreement terminates when Ackman’s stake in JCP drops below five percent. There has not been a public announcement from Ackman saying he wishes to sell his share. However, JCP stock fell dramatically after the announcement of his resignation from the board on August 12. Ackman cannot sell his JCP stock until the retailer releases its second quarter results on August 20.
The arrangement to sell Ackman’s Pershing Square Capital Management firm’s stake in JCP gives Ackman an out from his relationship with JCP. This will most likely trigger the end of the public squabbling between the two. At the current price, Ackman’s firm would lose around $300 million selling its stake. The deal may not be doing any financial favors for JCP either. The company’s stock has been declining rapidly, having dropped more than 30 percent so far this year, and more than 60 percent since the start of 2012. “The fact that Ackman will be creating fewer headlines will be important for Ullman and overall confidence among vendors and investors,” said Brian Sozzi, chief equities strategist at Belus Capital Advisors. “But I worry about that signal to the market when Ackman begins dumping his stock. He has been privy to all sorts of information for a long time, and if begins selling sooner than later, he'll be showing that he's willing to take a loss for fear of losing more money.”
There really isn’t a polite way to say it — JCP has dug itself a really deep hole, and the second quarter doesn’t show much hope for the retailer to climb out of it. Retailers like Macy’s and Kohl’s have already posted disappointing numbers for that time frame without the weight of quarter after quarter of steady decline upon them. "The bottom line is that the second quarter is going to be really bad for J.C. Penney,” said Sozzi. “It's still fighting with the ghost of Ron Johnson when it comes to the merchandise, so customers still haven't regained their trust in J.C. Penney.” At least when JCP reveals its quarterly report, on August 20, might able to let out a small sigh of relief knowing a new regime is at the helm, and maybe, just maybe, they can bring the department store chain out of the red and return to prosperity.