Why Ackman's Departure Is Good News for J.C. Penney

Activist investor Bill Ackman's departure from the J.C. Penney (NYSE: JCP  ) board was announced this morning. The news came in the wake of a new split between Ackman and the rest of the board, as he had recently been advocating for the removal of CEO Mike Ullman. After leaking the news to the media, the dispute quickly grew public and ugly, with Ackman saying that he had "lost confidence" in board chairman Thomas Engibous.

The board fought back, and apparently Ackman decided that he wasn't going to win the fight. In the statement from J.C. Penney announcing the change, Ackman is quoted as saying that his "stepping down from the Board is the most constructive way forward for J.C. Penney and all other parties involved." It might be the smartest thing to come out of his mouth regarding the department store.

The history of Ackman
In late 2010, Ackman pulled his investment in J.C. Penney up to 16.5%. Then, early in 2011, he used that position to help him gain a seat on the company's board. Immediately, he started pushing for a change at the company, focusing on getting CEO Mike Ullman out of the role. In June 2011, the company announced that Ullman would be out, and Apple executive Ron Johnson would be in. At the time, Ackman called Johnson the "Steve Jobs of the retail industry." 

Fast-forward to today, and J.C. Penney's stock has fallen 57% from the time of the announcement. Johnson is gone, and Ullman is back in. By the end, even Ackman had turned on Johnson, saying that the turnaround he oversaw lacked rigorous testing and attempted to make changes too quickly. Since Johnson's departure, insiders have said that Ackman has been waiting for Ullman to step aside again.

While the rest of the board seems to think that Ullman should have some time to make a difference, Ackman was under the impression that Ullman's promotion was more temporary. The board was unconvinced by Ackman's demands, and now Ullman is staying and Ackman is leaving. In the company's statement in support of Ullman, it said, "Mike is the right person to rebuild jcpenney by stabilizing its operations, restoring confidence among our vendors, and getting customers back in our stores."

More challenges ahead
One of the replacements for Ackman is Ronald Tysoe. Tysoe's background is with Macy's   (NYSE: M  ) , which has been gaining as J.C. Penney's losses have widened. Comparable sales have been in a free fall at J.C. Penney, but Macy's was able to grow comparable sales by 3.8%, last quarter. The difference can be traced back to the problems that Johnson had during his tenure. The removal of promotions and the introduction of price tiers upset customers and drove down comparable sales.

Luckily, Ackman's departure should give J.C. Penney investors a brief glimpse of hope. Now Ullman can continue to settle the business down while the board looks for a longer-term CEO at its own pace. One of the worst things the company could do right now would be to rush into a CEO hire and get another poor fit like Johnson. Ullman is a fine fit for J.C. Penney, and he can act as a stopgap while the company catches its breath. While the business still has a long way to go, it now has one less obstacle in the way.

Luckily, not every company is facing the same issues that are plaguing J.C. Penney. Like Macy's, some companies are gaining market share, changing the way we shop, and rewarding investors at the same time. The Motley Fool has picked three of these great companies, just for our readers. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2593573, ~/Articles/ArticleHandler.aspx, 10/25/2014 3:50:38 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement