Bill Ackman won an ally in hedge fund Perry Capital LLC in his efforts to oust J.C. Penney Co. Chairman Tom Engibous and Chief Executive Officer Mike Ullman.
Perry today reported a 7.3 percent stake in the retailer and echoed Ackman’s comments that the board should seek to quickly overhaul its management. The board isn’t functioning effectively, major personnel decisions are being made without the advice of all directors and important financial information is being withheld, Ackman, whose Pershing Square Capital Management LP is the company’s largest shareholder, said in a separate letter to fellow board members today.
Perry’s support gives Ackman, who handpicked former CEO Ron Johnson, more sway as he presses J.C. Penney to name a new team that can implement a turnaround plan and stanch his losses on the stock. Ackman and Perry together own about a quarter of the retailer’s shares. The rest of the board so far has stood its ground, saying that Ullman is the right CEO to revive the company and that the board is working properly.
“He’s clearly alienated the rest of his directors on the board,” Jeffrey Sonnenfeld, senior associate dean at the Yale School of Management, said in an interview. “His chosen candidate, Ron Johnson, virtually destroyed this great American icon and now he’s throwing a tantrum about the guy they brought in to replace him.”
Ullman, who returned on an interim basis at age 66 in April, has revived price cutting and brought back merchandise to attract core customers alienated by Johnson’s strategy, which centered on ending discounting and remaking the stores into collections of boutiques.
Ackman today criticized Ullman for making a number of important decisions without consulting the full board. Ackman said he terminated AlixPartners, which a person familiar with the matter told Bloomberg had been hired in April to help the retailer get fresh financing. Ullman also cut off Blackstone Group LP’s access to the company’s financial information and ended its role in analyzing the company’s position, Ackman said.
Ullman has been using Centerview Partners LLC and co-founder Robert Pruzan, Ackman said. Representatives of Blackstone didn’t immediately respond to requests for comment. Tim Yost, an AlixPartners spokesman, and Christopher Beattie, an outside spokesman for Centerview, declined to comment.
Other personnel moves that Ackman said the full board should have been consulted on include the hiring of Debra Berman from Kraft Foods Group Inc. (KRFT) as senior vice president of marketing, which was announced earlier this week.
Ullman also fired Sergio Zyman, a former Coca-Cola Co. advertising executive, who had been brought in as a marketing consultant in February, and pushed out Senior Vice President of Operational Strategy Bob Peterson, Ackman said. He said he was told Vice President of Financial Planning and Analysis Susan Ray was fired.
A message left on Ray’s voicemail wasn’t immediately returned, nor was an e-mail to Peterson and a message with Zyman. Messages left for J.C. Penney spokesmen weren’t immediately returned.
Engibous said today that Ackman’s accusations of board dysfunction were “misleading, inaccurate and counterproductive.”
“The Board is focused on the important work of stabilizing and rejuvenating the business,” Engibous said in a statement. “It is following proper governance procedures, and members of the Board have been fully informed and are making decisions as a group. This includes the CEO search process, which is being conducted at an appropriate pace.”
The board agreed July 22 to begin a search for a CEO, to be named within six months, according to a person familiar with the matter, who asked not to be identified as the process is private. Ackman is pushing to find someone by mid-September since there are only a few candidates, the person said.
Spokesmen for Foot Locker and Bon-Ton didn’t reply to requests for comment. Andrew Blecher, an outside spokesman for Hudson’s Bay, declined to immediately provide a comment.
J.C. Penney has hired executive recruiter Heidrick & Struggles International Inc. (HSII) to assist with the CEO search, according to a person familiar with the process who asked not to be identified because the details are private.
Ackman, 47, told board members in a letter yesterday that he persuaded former J.C. Penney CEO Allen Questrom to agree to return as chairman if he approves of the department-store chain’s next CEO and said today that Questrom may return even before one was chosen.
“J.C. Penney is at a very critical stage in its history and its very existence is at risk,” Ackman said in today’s letter. “During a period like this one, it is absolutely critical that we work together to solve our problems. It is essential that our board function extremely effectively or we will certainly fail.”
Perry Capital founder Richard Perry said today in a letter to J.C. Penney’s board that it should name Questrom chairman and choose Foot Locker’s Hicks for CEO.
J.C. Penney shares, which dropped 5.8 percent to $12.87 at the close in New York, have slid 35 percent this year.
Questrom, 73, criticized J.C. Penney directors for moving too slowly to find a permanent CEO after rehiring Ullman. He said he had supported Ullman as interim CEO and had expected the board “to use the time that Mike afforded them generously to find a person who was long term.”
In an interview yesterday from Aspen, Colorado, Questrom called returning as chairman “a long shot,” hinging on directors forming “a positive board and an aggressive board to help solve the problems.” He also said he’d return only if the board hired a new CEO who had previously served as a chief executive and had retail experience, preferably with department stores.
Ullman, who had served as J.C. Penney’s chairman and CEO for about seven years, has the board’s support.
“Mike is the right person to rebuild J.C. Penney by stabilizing its operations, restoring confidence among our vendors, and getting customers back in our stores,” Engibous said in a statement yesterday after the market closed. “He has the overwhelming support of the Board of Directors, and we are confident the Company is in good hands.”
Since taking over, Ullman has been trying to woo back middle-aged women, the chain’s core customers, who decamped when Johnson changed the merchandise mix to attract younger shoppers and reduced discounts. Ullman has revived so-called “doorbusters” bargains usually reserved for the holiday-shopping season.
Marketing has been refocused on bargains and private-label lines like St. John’s Bay, a $1 billion brand whose women’s apparel was discontinued under Johnson. The company is bringing back three other brands popular with older, female shoppers: the lingerie line Ambrielle, outdoor-apparel Made for Life and JCP Home.
Ullman also has labored to shore up J.C. Penney’s cash balance. Along with hiring AlixPartners in April, the company started negotiating a $2.25 billion loan arranged by Goldman Sachs Group Inc. and borrowed $850 million from a revolving credit facility.
J.C. Penney isn’t Ackman’s first foray into retail. He raised a $2 billion investment vehicle in 2007 that bought a stake in Target Corp. (TGT) that lost 90 percent of its value over the next two years. At the time, Ackman called it “one of the greatest disappointments” of his career. Pershing Square sold its Target stake in the first quarter of 2011, after shareholders rejected a board slate nominated by Ackman.
Ackman’s sudden outburst of criticism of his fellow J.C. Penney board members is unusual, said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.
“Given the fact that he has been so involved with directors for some time now and was involved heavily in hiring the last CEO, it’s very surprising he’s launched such a public dispute,” Elson said.
Pershing Square International Ltd., the firm’s largest fund at $4.9 billion in assets, rose 3.7 percent this year through July, according to a performance update sent to clients. U.S. stocks returned 20 percent and hedge funds on average gained 3.2 percent in the period, according to data compiled by Bloomberg.
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