J.C. Penney's Public Boardroom Battle Ends With Ackman Exit

PHOTO: William AckmanNorm Betts/Bloomberg via Getty Images
William Ackman, chief executive officer of Pershing Square Capital Group LLC and Canadian Pacific Railway Ltd. board member, attends the Canadian Pacific Railway annual shareholders meeting in Toronto, Ontario, Canada, May 1, 2013.

After a three-year long turnaround effort that roiled the department store chain and drove away shoppers, activist billionaire investor Bill Ackman has resigned from J.C. Penney Company's board.

Paul Swinand, analyst with Morningstar, said Ackman's resignation is good news for the retailer.

"It's a net positive in that they're at a critical 'all hands on deck' time, and they don't need a hedge fund investor second-guessing things and mucking up the system," Swinand said. "He can write long letters about questioning decisions and even if he's right, it's like saying the house is on fire and the fire truck driver is not qualified."

J.C. Penney said it added former chief financial officer of Federated Department stores Ronald Tysoe to the board.

Ackman still has an estimated 18 percent stake in the retail company through his investment firm, Pershing Square Capital Management, gained in Sept. 2010.

In 2011, Ackman had reportedly encouraged the hiring of former Apple retail chief Ron Johnson, who led a failed turnaround effort of the company by implementing everyday low prices in place of promotions. Johnson was fired in April, reportedly also with the approval of Ackman.

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"During my time on the J. C. Penney Board of Directors, I have always advocated for what I believe to be in the best interests of the Company - its stockholders, employees and others," Ackman said in a statement. "At this time, I believe that the addition of two new directors and my stepping down from the Board is the most constructive way forward for J. C. Penney and all other parties involved." Ackman did not immediately respond to a request for comment.

Shares of J.C. Penney fell 2.8 percent on Tuesday morning to $12.81.

Last week, tensions between Ackman and J.C. Penney's board escalated when he publicly released letters in which he said he had lost confidence in the board and that both interim CEO Myron Ullman and Chairman Thomas Engibous should be replaced.

While the board searched for a new CEO, Ullman had returned as chief executive four months ago after Johnson was fired.

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J.P. Morgan's Matthew Boss said that when digging into Ackman's letters to J.C. Penney's board, "one cannot ignore the sense of urgency for change given comments including, 'Traffic was recovering, Mother's Day was strong, and we appeared to be recovering' as well as 'I am also extremely troubled about the aggressive inventory purchases and future commitments we are making for later this year and 2014' leading us to believe [second quarter] results may materially miss the mark'."

On Friday, Engibous said in a statement that, "Mr. Ackman's statements are misleading, inaccurate and counterproductive."

The company reported in May that its loss widened to $348 million in the first quarter, compared with a loss of $163 million in the same period a year ago. Its next earnings report is due Aug. 20.

"In our view, the timing of the recent public battle could not come at a worse time entering Back-To-School with potential new management unable to materially alter the high-volume Holiday game plan at this point, but rather disrupt execution," Boss wrote in his research note on Monday.