NEW YORK, N.Y. – Two struggling retailers, J. C. Penney and Abercrombie & Fitch, are taking opposite approaches on a popular defence aimed at deterring unwanted takeover attempts.
J.C. Penney announced steps that will make it easier to trigger its “poison pill,” making it more difficult for an activist investor to push for a sale. Its shareholder rights plan, as the takeover defence is known, can now be put into effect if an individual or group acquires 4.9 per cent or more of its outstanding stock. That’s down from a 10 per cent threshold.
The retailer said the move was designed to protect its ability to use certain funds that can be used for tax benefits.
But teen retailer Abercrombie & Fitch Co. said that it was terminating its shareholder rights plan, making it easier for a sale to happen.
The move comes as it said it was separating its chairman and CEO roles and expanding its board’s size. Arthur Martinez, the former head of Sears, was named non-executive chairman. Michael Jeffries, who’d served as chairman since 1996, will remain a director and the CEO.
Abercrombie & Fitch named Martinez plus Terry Burman and Charles Perrin as directors, expanding its board to 12 members. The appointments are effective immediately.
“It’s a tale of two different companies at different points in their lives,” said Brian Sozzi, CEO and chief equities strategist at Belus Capital Advisors. “J. C Penney is fighting for survival and Abercrombie is fighting for relevancy.”
The corporate defence strategy allows existing shareholders to buy more shares at a very low price if a takeover attempt occurs.
Plano, Texas-based Penney said in a statement that any ownership change would prevent it from using its more than $2 billion in what’s called net operating loss carryforwards. They can be used in certain circumstances to offset future taxable income and reduce federal income tax liability. The company also extended the shareholder rights plan’s expiration date to Jan. 26, 2017, from Aug. 20 of this year.
“The purpose of the amended rights plan is to protect stockholder value by preserving the company’s ability to fully use its NOLs,” the company said.
The move to deter activist investors comes as Penney suffered disastrous consequences when activist investor Bill Ackman of Pershing Square came on the board of Penney’s in 2011 and pushed the board to hire Ron Johnson, a former Apple executive, as its CEO. Johnson’s transformation plan resulted in plummeting sales and massive losses. Johnson was fired in April 2013 after 17 months of being on the job.
The company re-hired Mike Ullman as its CEO and Ullman is dismantling a lot of the work done by Johnson.
In August, Ackman, who was formerly Penney’s largest shareholder, resigned from Penney’s board and sold Pershing’s entire 18 per cent stake as part of a deal to resolve a public dispute between himself and the company.
Penney is cutting jobs in an effort to return to profitability, while it brings back frequent sales events and basic merchandise that were eliminated by Johnson.
Its shares fell 9 cents to $6.42 in trading Tuesday. The stock has lost 85 per cent of its value since February 2012 when investor enthusiasm was high over Johnson’s transformation plan.
Abercrombie & Fitch’s move to ditch the poison pill and make changes to the board show that it’s open for a sale of the company.
It named Martinez plus Terry Burman and Charles Perrin as directors, expanding its board to 12 members. The appointments are effective immediately.
Burman is the former CEO of Signet Jewelers Ltd. and before that was president and CEO of Barry’s Jewelers Inc. Perrin is a former chairman and CEO of Avon Products Inc. and previously held the same posts at Duracell International Inc.
“We view these actions as positives for the stock,” said Stifel Nicholaus’s Richard Jaffe in a note to investors Tuesday. “In our opinion, the new board members have demonstrated an openness and willingness in the past to explore all opportunities that are in the best interest of shareholders, and we believe that will be the case for (Abercrombie).”
Last month Abercrombie announced that it was reworking CEO Jeffries’ contract, tying his compensation more closely with company performance.
Jeffries helped establish the company’s reputation after arriving in the 1980s, but Abercrombie has struggled since the Great Recession. Jeffries came under withering fire for comments relating to the type of customer he wants in his store and the fact that the store does not offer plus sizes.
In the nine weeks through Jan. 4, a period that includes the crucial holiday shopping season, sales at stores open at least a year fell 6 per cent. This metric is a considered a key indicator of a retailer’s health.
Prior to Abercrombie’s announcement that it was retooling Jeffries’ contract, Engaged Capital — which owns 400,000 shares of the retailer — sent a letter to the company demanding that Jeffries be replaced. Engaged said at the time that it believed the retailer’s “perennial underperformance is a result of a failure of leadership” and urged the board to put new leadership in place.
Abercrombie also announced Tuesday that Craig Stapleton will no longer serve as lead independent director, a post he’d held since 2010. Stapleton will continue to serve as a board member and as chair of the nominating and board governance committee.
Stapleton said in a statement that the changes the company was making were partly in response to shareholder concerns and said the chain would continue to review other potential “corporate governance enhancements.”
Abercrombie & Fitch, whose brands include Hollister, Gilly Hicks and its namesake, is based in New Albany, Ohio. It currently runs 890 stores in the U.S. and 166 stores in Canada, Europe, Asia and Australia.
Abercrombie shares added nearly 5 per cent, or $1.66, to close at $36.27 on Tuesday. The stock is down almost 27 per cent in the past year.