J.C. Penney's and Abercrombie's Poison Pills Are Great Developmentshttp://www.fool.com/investing/general/2014/02/03/jc-penneys-and-abercrombies-poison-pills-are-great.aspx Daniel Jones
February 3, 2014
On Tuesday, Jan. 28, J.C. Penney (NYSE: JCP) and Abercrombie & Fitch (NYSE: ANF) announced changes to their respective shareholder-rights plans (aka poison pills). In response to the changes, J.C. Penney's shares fell 1.4%, while Abercrombie's stock rose 4.8%. What do these changes in each company's poison pill and the corresponding change in share price mean for shareholders going forward? Is the situation at J.C. Penney poised to worsen while Abercrombie's fate is about to improve, or is Mr. Market overreacting to what could be insignificant events?
J.C. Penney gets strict
Now, however, the company's board has decided to extend the plan, which was due to expire in August, to January 2017. In addition to the extension, the company lowered the trigger from 10% to 4.9%. What this means is that any new investors who acquire 4.9% or more of the company's shares without approval from the board will trigger the poison pill. This kind of event, if triggered, will mean that existing shareholders (with the exception of the party who triggered the 4.9% threshold) will be given the right to acquire additional shares at 50% of the trading value directly from the company.
The past few years have been particularly hard on J.C. Penney. After seeing revenue drop 25% between 2011 and 2012 and a net loss of $152 million transform into a $985 million loss, shares of the retailer fell precipitously. In an effort to save the business, the board ousted its CEO, Ron Johnson, and replaced him with Mike Ullman, the company's previous CEO. Since making the leadership change, business has begun to show some signs of improvement and, in an attempt to keep the recovery on track, management likely decided on a beefed-up poison pill to fend off takeover artists.
Abercrombie & Fitch opens the floodgates!
In the third quarter alone