Tuesday morning, activist shareholder and hedge fund manager Bill Ackman resigned from the JC Penney (click ticker for report: ) board of directors. In a press release issued by the company, Ackman noted that during his entire board tenure, he’s always done what is best for the company, and he believes the best move at the moment is for him to step away from the board.
Image Source: Valuentum, Company Filings
Based on the stock’s initial reaction, we’re not sure if the market knows how to digest Ackman’s departure. On one hand, CEO Mike Ullman and Chairman Thomas Engibous no longer have to battle with Ackman over saving their jobs, but rather they can focus on engineering what continues to be a challenging turnaround. Ackman’s letter to the board last week demanding a search for new management created an awkward situation for everyone involved. The situation became even more tense when Starbucks (click ticker for report: ) CEO Howard Schultz threw his support behind Ullman and suggested Ackman be removed from the board.
On the other hand, this may not be the end of the saga between JC Penney and Bill Ackman. As it stands, Ackman owns 18% of the company, and some sources say he could be limited with respect to how he unwinds a stake. Conversely, there’s nothing to prevent Ackman from purchasing more shares and becoming a majority shareholder, allowing him to enact whatever changes he sees fit.
However, let’s not forget the last CEO Ackman handpicked for JC Penney, a man by the name of Ron Johnson. Johnson had a stellar resume, worked with two of the best run retailers in the world in Target (click ticker for report: ) and Apple (click ticker for report: ), and came with a plan to do nothing short of revolutionize JC Penney. While we believe these changes were needed to stop the firm from bleeding a slow death, there is little doubt that the change hasn’t worked.
So, is Ackman the person shareholders should want to pick the next CEO? We think the answer is unequivocally no.
Valuentum’s Take
The only conclusion we can draw from Ackman’s departure from the board of directors at JC Penney is further uncertainty. We now may have a large shareholder unwinding his position or potentially doubling (or tripling) down on his position to enact changes he sees fit. Considering previous CEO Ron Johnson was championed by Ackman, we’re not sure we’d like to see Ackman choose another CEO.
By no means do we think Ackman is a bad investor, but it certainly appears he is a bad retailer. With second quarter results out next week (and likely to be weak), we have no interest in adding shares of JC Penney to the portfolio of our Best Ideas Newsletter at this time.
Disclosure:
RJ Towner owns shares of the following companies mentioned in this article: AAPL