Monday, April 8, 2013

JCP Reinstates Its Old CEO


JCP Reinstates Its Old CEO

With great flourish, JC Penney hired Ron Johnson, the Apple Stores guru in 2011, to turn around the company.  They also dismissed Myron Ullman, JC Penney’s CEO from 2004 until  2011.  Yesterday, the board reversed course, terminating Mr. Johnson and rehiring Mr. Ullman.   JC Penney remains riddled with problems, but the real story is the influence of two board members: William Ackman who runs the hedge fund Pershing Square and Steve Roth who runs Vornado Realty Trust.  Pershing Square owns just fewer than 17% of the stock and Vornado holds just over 6% of the shares.  The two investors pushed for the hiring of Johnson, and apparently have acceded to rehiring Ullman.

I’m wondering whether there’ll be any consequences for the board members? They ousted Mr. Ullman a little over a year ago, paying him $34.6 MM for his services, including a variety of one-time payments. They granted Mr. Johnson a warrant to purchase 7.3 MM shares at $6.89/share, which vests upon his termination. They also granted Mr. Johnson 1.7 MM restricted stock units when he came on board. The RSUs vested into common stock early in 2012. In total, it looks like it cost about $80 million to switch CEOs.  So far, they are only paying Mr. Ullman $1 million to return.  However, I expect he’ll have a lucrative agreement soon enough.  Meanwhile, JC Penney’s fortunes continue to sag.

Messrs. Ackman and Roth may be sophisticated investors, but they don't seem to know much about running a business.  The other investors might be better off if Ackman and Roth stepped down from the board.

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