Penney broadens poison pill defense; Abercrombie ditches its version
J.C. Penney Co. just made it easier to trigger its shareholder rights plan — a.k.a. its poison pill defense against hostile takeover attempts — leading to early speculation on Wall Street that potential buyers might be sniffing for an opening.
The retailer, whose earnings have veered from dismal to lackluster for more than two years, lowered its poison pill threshold Tuesday to 4.9% from 10% previously.
The company explained that, with some exceptions, if an investor acquired more than 4.9% of its shares, it would release a flood of additional shares into the market. The outpouring would dilute the value of the aggressive investor’s holdings, making it a pricey proposition to gain control.
To further shield itself from unwanted advances, J.C. Penney broadened its poison pill parameters, pushing the expiration date from Aug. 20 of this year to Jan. 26, 2017. The original plan was adopted in August.
The Plano, Texas, company said that an ownership change would limits its ability to use more than $2 billion in what are known as net operating loss carryforwards, which can be used to offset future taxable income and lower future federal income tax liabilities.
The new plan goes into effect immediately, though it still faces a board vote at the retailer’s next annual meeting in May.
J.C. Penney said earlier this month that it expected to close 33 stores and cut 2,000 positions.
Soon after trading opened in New York, J.C. Penney stock spiked 1.5% to $6.61 a share before settling back down to a 0.2%, or 1-cent, boost to $6.52 a share near midsession.
The “initial move on the stock reflects a belief the company was approached and has been forced to protect itself,” wrote Belus Capital Advisors Chief Executive Brian Sozzi in an email.
Sozzi, who in a note to clients said that post-holiday business at the chain seems to have “been more challenging than expected,” added that shareholders can look forward to “a likely continued underperforming stock price” as well as “an inability to be relieved from their misery via a transaction.”
In 2013, as the company attempted to recover from a series of drastic and poorly-received changes in strategy, its stock tanked 53.6%.
“J.C. Penney has planted a flag in the ground today that’s all in with CEO Mike Ullman’s turnaround strategy yielding meaningful financial progress in 2014, and for the stock to rise and attract a new shareholder base,” Sozzi said.
Fellow struggling retailer Abercrombie & Fitch took a different route Tuesday and abandoned its poison pill plan entirely, setting itself up as an easier acquisition target.
The New Albany, Ohio-based teen apparel company also said it is expanding its board of directors to 12 members and adding three new directors. One of them, former Sears Chairman and CEO Arthur C. Martinez, will also become Abercrombie’s new chairman.
Martinez is taking over the role from Abercrombie CEO Mike Jeffries, who had been chairman since 1996.
The company has recently suffered because its “preppy logoed positioning” has “fallen out of favor with its core customer” and also because it had relied on “poor strategy driven by entrenched management that is unwilling to change,” wrote Macquarie Capital analyst Liz Dunn in a note to clients.
The changes “could be significant in providing fresh perspective on management’s strategic direction,” she wrote.
Abercrombie stock was up 6.3%, or $2.18, to $36.79 a share in midsession trading in New York.
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