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J.C. Penney shares rise on activist's push for new CEO, but Penney board fires back

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(Globalpost/GlobalPost)

NEW YORK, N.Y. - A fight broke out Thursday over J.C. Penney's next CEO as a prominent activist investor William Ackman urged the company's board to find a replacement for interim CEO Mike Ullman, and the company's chairman stood by Ullman.

Even Howard Schultz, Starbucks founder and CEO, weighed in. Schultz defended Ullman, who serves as a member of Starbucks board, and lambasted Ackman.

Penney's shares jumped about 7 per cent on a media report that Ackman, who is a member of Penney's board, is pushing the board to speed up the process of finding a permanent replacement for Ullman.

Ullman, who had been Penney's CEO from 2004 to 2011, took back the reins in April. He took over from Ron Johnson, who was supported by Ackman but was ousted after 17 months on the job after his radical makeover of the chain led to disastrous results.

Analysts had expected Ullman's reign the second time around would be transitional until Penney hired a replacement. But Ackman, in a letter to the board on Thursday, said the search for a replacement has been too slow. CNBC first reported Ackman's letter.

Former J.C. Penney CEO Allen Questrom, who ran the company from 2000 to 2004, said in an on-air interview on CNBC he would consider coming aboard as chairman under the right circumstances, if he agreed on the choice of CEO and as long as the board wasn't hostile.

"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," Ackman, who heads up investment firm Pershing Square, wrote in his letter to the board. "We need a CEO with extensive, ideally department-store retail experience, strong operational skills and a strong public company track record. ... We can't afford to wait."

But Penney's board fired back late Thursday, saying that Ullman was "the right person to rebuild" J.C. Penney and strongly disagreed with Ackman.

"The company has made significant progress since Myron E. (Mike) Ullman III returned as CEO four months ago, under unusually difficult circumstances," Penney Chairman Thomas Engibous said in a statement. "Since then, Mike has led significant actions to correct the errors of previous management and to return the company to sustainable, profitable growth."

Engibous added that the CEO search process, which started three weeks ago, will be "careful and deliberate to ensure we find the right long-term leader for J.C. Penney."

He said that the board is "extremely disappointed that his letter was released to the media at the same time that it was sent to the board. 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."

Questrom could not immediately be reached for comment.

Schultz told The Associated Press in a phone interview that he was "disgusted" by Ackman's actions as he watched the events unfold Thursday. He said he is not a Penney shareholder, but Ullman has served on Starbucks' board for over 10 years and he considers himself a friend.

"Mike has been working tirelessly to save the company. He's a world class CEO and leader," he said. "I just can't sit by and be a bystander. It's unfair and unjust."

Shares of Penney jumped 87 cents, or 6.8 per cent, to close Thursday trading at $13.67. That is still down about 31 per cent since the start of the year, and remains close to the low end of the stock's 52-week range of $12.50 to $32.55.

Penney is trying to win back customers who fled during a transformation plan spearheaded by Johnson that backfired and led to massive losses and sales declines.

Penney amassed nearly a billion dollars in losses and its revenue dropped 25 per cent for the fiscal year that ended Feb. 2 in the first year of the failed transformation strategy, which included decluttering stores, revamping merchandise and doing away with most discounts. Losses and sales drops continued into the first quarter, as the shadow of Johnson's legacy remained.

Ullman has been working to stabilize the business by bringing back basic merchandise and more frequent sales that were eliminated by Johnson in a bid to attract younger, hipper customers. But some analysts believe that while traffic is improving as a result of stepped-up discounts and the return of brands like St. John's Bay, there has been no evidence of a turnaround yet as the company heads into the bulk of the critical back-to-school shopping period. Moreover, concerns are growing about Penney's financial liquidity.

Deborah Weinswig of Citi Investment Research, published a note Tuesday saying that Penney has ample cash for this year but 2014 is still in question and Penney could "face a cash crunch in 2015." Weinswig, once an advocate for the company, lowered her rating on Penney's stock to "Sell" from "Neutral" last week.

Dan Hess, CEO of Merchant Forecast, an independent research firm that monitors the retail sector, said he believes that Ullman has done a good job in stabilizing sales even though the improvement on the selling floor isn't reflected in the share price.

"A lot of things are working, but it takes time," he said. He said he couldn't guess the names of candidates for the CEO job Penney is considering.

Penney is expected to issue its second-quarter report Aug. 20.

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