JCPenney Board Battles Shareholder Ackman

by Harry Sheff

JCPenneyJCPenney chairman Thomas Engibous has issued an angry statement on behalf of the board responding to major shareholder William Ackman’s push for a new CEO and nomination of Allen Questrom as chairman.

“The board of directors strongly disagrees with Mr. Ackman and is extremely disappointed that his letter was released to the media at the same time that it was sent to the board,” Engibous wrote. “Mr. Ackman has been integrally involved in the board’s activities since he joined two years ago. This includes leading a campaign to appoint the company’s previous CEO, under whose leadership performance deteriorated precipitously. His latest actions are disruptive and counterproductive at an important stage in the company’s recovery.”

Ackman’s letter to the JCPenney board—posted in full below—pushed for the speedy replacement of interim CEO Mike Ullman and said that another former JCPenney CEO, Allen Questrom, was willing to return as chairman to oversee the search and complete it in less then six weeks.

Questrom, when reached for comment by CNBC, said he wouldn’t come back to JCPenney “under hostile circumstances.”

While chairman Engibous and the board reaffirmed its support for CEO Mike Ullman, it’s unclear how long it intends for Ullman’s interim tenure to last.

“The company has made significant progress since Myron E. (Mike) Ullman, III returned as CEO four months ago, under unusually difficult circumstances,” Engibous wrote. “Since then, Mike has led significant actions to correct the errors of previous management and to return the company to sustainable, profitable growth.

“Mike is the right person to rebuild JCPenney by stabilizing its operations, restoring confidence among our vendors, and getting customers back in our stores. He has the overwhelming support of the board of directors, and we are confident the company is in good hands.”

Ackman, a billionaire hedge fund manager with Pershing Square Capital Management, is a director and the retailer’s largest shareholder. His letter to the board is reproduced in full here:

To My Fellow Directors:

I am very concerned about the future of J.C. Penney. While I supported the decision to bring back Mike as an interim CEO, it was based on Tom’s statement that we would immediately launch a search process for a long-term CEO.

It was not until the July 22nd board meeting, nearly four months later, that the board agreed to make the succession issue part of the agenda. More than two weeks have passed since the formation of the search committee and we just hired a search firm. My understanding is that the search firm intends to begin a process of interviewing directors individually to build a consensus as to the type of CEO we are looking for. This will take weeks in light of summer schedules, and is not a prudent use of time.

Considering the scale of J.C. Penney, the seriousness of the issues it faces, and the complexity of its business, there are only a handful of executives with sufficient talent and experience to take on the CEO role. We need a CEO with extensive, ideally department-store retail experience, strong operational skills, and a strong public company track record. When non-competes, geographical considerations, and other personal and timing issues are considered, the number of potential CEO candidates is quite limited.

Allen Questrom, who saved the Company once before – the stock rose from $13.94 to $39.10 during his four-year tenure – has agreed to return as Chairman of the board and assist in the turnaround as long as we hire a CEO that he supports. Allen believes that a thorough vetting of the limited potential available candidates can be accomplished in 30 to 45 days.

In light of the above, and as J.C. Penney’s largest shareholder, I strongly urge that we immediately put together a short list of candidates, determine their interest level, and schedule a fast-track

interview process with the board. There is no reason that this process could not be completed in the time frame that Allen recommends.

We can’t afford to wait.



[UPDATE: Ackman has issued another public letter to the JCPenney board as of Friday morning. The full text is here.