J.C. Penney's Poison Pill Defense Is Wishful Thinking

Why would anyone want to take over J.C. Penney?

J.C. Penney Co. is adopting a "poison pill" provision aimed at preventing takeovers. After a bruising board battle that saw activist investor Bill Ackman removed last week, you can see why the company would want to do something. But I'm not sure how it chose this "something." The company's stock has lost about three-quarters of its value since 2011, and it looks like it last paid a dividend in early 2012. Ron Johnson , who was hired away from Apple stores to oversee a big overhaul, was summarily sacked after his brief tenure drove customers away in droves.

The company is now trying to roll back the changes Johnson made, but even if it manages to get back to where it was...well, unfortunately, where it was was a bit of a dead end. The value proposition of a mall department store that caters to the lower middle-class value shopper is not good in an era when malls, department stores and the lower middle class are all in trouble.

The company's demographic also skews heavily toward the over-55 set, and younger folks are not replacing those shoppers. (This was the problem that Ron Johnson was brought in to fix.) Basically, lower middle-class folks who have always shopped at J.C. Penney still want to shop there, albeit less lavishly, as long as it stays the same. But if it stays the same, no one else will want to shop there, and eventually the core customer base will die off, and so will J.C. Penney. Unfortunately, Ron Johnson's attempts to attract a younger, more lucrative demographic drove off the old customers without bringing in any new ones.

In other words, J.C. Penney is in a pickle, and it's hard to see why anyone would want to take it over. In the old days, someone might have bought the firm just to grab their real estate, but these days, malls are in trouble, and you don't buy a troubled company just to shackle yourself to more mall leases.

Given all that, this move seems more wistful than wise. Or as Reformed Broker put it on Twitter: "JC Penney adopting a poison pill is like me in 8th grade walking around with a condom in my wallet. No need, chief."

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