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Penney not saved

19 June 2012 By Agnes T. Crane

It’s a good thing Bill Ackman considers J.C. Penney a long-term bet – because it’s a dog right now. The sudden departure of the highly touted president after just eight months essentially underscores the work that lies ahead for the struggling U.S. retailer. J.C. Penney shares tumbled another 9 percent on Tuesday and served as a reminder of just how hard bold turnarounds can be in the public glare.

Oddly enough, Ackman revealed in a letter last week that he had a chance to give the century-old company a makeover in private. A buyout firm expressed interest soon after the Pershing Square boss secured 16.5 percent of J.C. Penney. When he first disclosed his stake in October 2010, J.C. Penney shares were trading at around $29 apiece. In the months after Ackman helped recruit Apple retail guru Ron Johnson to run the company, they soared to over $43. The shares closed at $22.25 on Tuesday.

Not much has gone right under Johnson. His decision to pare back discounts and redesign stores has led to bigger-than-expected losses and a dip in sales. Bad marketing messages were partly blamed. Hiring Michael Francis away from Target didn’t go to plan. His ballyhooed “vision” hasn’t provided much for public shareholders to see.

Private investors typically have more patience when things don’t go right the first time. They also have greater tolerance for a pay package of $15 million for less than a year’s worth of bad work, as was the case with Francis. Johnson at least isn’t wedded to his failing approach and is moving quickly to try something different. He will now personally oversee marketing and merchandising. But the goodwill he engendered from shareholders for his Apple and Target successes has evaporated.

Ackman wasn’t interested in going private even for a “substantial premium” to $30 a share. He’s sticking with J.C. Penney and its four-year transformation. Ackman and Johnson have the pedigrees to get it right. If they don’t, however, the rest of the company’s owners may wonder why they weren’t given the chance to cash out so J.C. Penney could figure things out behind closed doors.


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