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J.C. Penney Moves to Guard Ability to Cut Future Taxes

Jan. 28 (Bloomberg) -- J.C. Penney Co., the department-store chain that has gone nine straight quarters without a profit, took steps to make sure it would be able to use its losses to reduce taxes in the future.

The retailer said today in a statement that the move would trigger its shareholder rights plan -- or poison pill -- if investors acquired more than 4.9 percent of the shares, down from 10 percent previously. J.C. Penney said an ownership change would limit its ability to use its more than $2 billion in so-called net operating loss carryforwards to lower future tax liabilities.

Chief Executive Officer Mike Ullman has reversed the decline in J.C. Penney’s same-store sales by reviving popular private-label brands and bringing back sales events. Analysts estimate the department-store chain’s loss in the quarter through January will narrow to $225.2 million from $552 million a year earlier.

“It does suggest that the company thinks that at some point they’ll turn positive earnings, and at some point they can use those” tax assets, Liz Dunn, an analyst at Macquarie Group in New York, said today in a telephone interview. “They should have had this protection in place already.”

Dunn has a neutral rating on the stock, the equivalent of a hold.

The company also extended the rights plan, which was set to expire Aug. 20, until Jan. 26, 2017. Current shareholders who own 4.9 percent of the shares or more would only trigger the poison pill if they acquire more stock, with certain exceptions, the retailer said.

J.C. Penney, based in Plano, Texas, fell 1.4 percent to $6.42 at the close in New York. The shares plunged 54 percent last year.

To contact the reporter on this story: Lauren Coleman-Lochner in New York at llochner@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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