Ailing department store retailer JC Penney can’t get away from drama. In a tumultuous year that has already seen falling sales and a CEO change, activist shareholder and board member Bill Ackman is stepping up his war of words with other directors and calling for a new chief executive. And now, another hedge fund has taken a stake and is backing Ackman in the ouster of CEO Mike Ullman.
Perry Capital has taken a more than 7% stake in JC Penney and is calling on the retailer to replace Ullman with former JC Penney president and current Foot Locker CEO Ken Hicks. Ackman earlier this week publicly called on JC Penney to find a replacement for Ullman within 30 to 45 days. Ullman was hired in April to replace Ron Johnson, Apple’s head of retail stores who got rid of JC Penney’s popular discounts as CEO. Ullman was also Johnson’s predecessor.
JC Penney’s board chairman Thomas Engibous fired back in his own public letter yesterday, saying Ullman is the right person to rebuild JC Penney and that the CEO search process was being conducted in a “careful and deliberate” manner. He criticized Ackman for recruiting Johnson and said Ackman’s moves were “disruptive.”
Ackman—who is also in an acrimonious face-off against legendary investors George Soros and Carl Icahn over Herbalife—came back again today with another letter. Instead of spending his time trying to find his successor, Ackman said Ullman has been hiring and firing other executives without consulting the board, among other concerns. Ackman also said he had lost confidence in Engibous, who should be replaced. Perry Capital also agrees with Ackman on ousting Engibous. This time, Engibous came back with just a statement, saying “Mr. Ackman’s statements are misleading, inaccurate and counterproductive.”
The circus surrounding JC Penney’s board and management makes the retailer’s precarious situation even worse. JC Penney shares plummeted earlier this month after the New York Post reported that lender CIT was clamping down on financing for JC Penney’s small vendors. The stock recovered a bit after the department store denied the report, but analysts expect it will detail another downturn in sales when it reports earnings later this month.
To stop making an already bad situation worse, all of the parties need to call a truce and take their fight indoors. Both sides have some truth with them: Ackman is right that the board has not done enough to stop JC Penney’s demise and Engibous is right in that Ackman made the situation worse by bringing in Johnson.
Ackman also said JC Penney was at a “very critical stage in its history and its very existence is at risk.” It may be too much to hope that JC Penney can thrive, but at least the board members can help it survive.