Penney, A&F: Different steps with poison pill

Published on NewsOK Modified: January 28, 2014 at 3:50 pm •  Published: January 28, 2014

NEW YORK (AP) — Two struggling retailers, J. C. Penney and Abercrombie & Fitch, are taking opposite approaches on a popular defense 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 defense is known, can now be put into effect if an individual or group acquires 4.9 percent or more of its outstanding stock. That's down from a 10 percent 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 defense 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 percent 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.

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