Will Blackstone Be Able To Initiate J.C. Penney’s Turnaround?
Just as J.C. Penney (NYSE:JCP) was about to circle the drain, the company has apparently called on the Blackstone Group (NYSE:BX) to come in an assist with positioning the firm financially, and key investor Bill Ackman acknowledged that shareholders were willing to put in more capital to bring the struggling retailer back to its feet.
The prospect of getting third-party assistance should help tame the nerves of disconcerted investors, following the shakeup of executives that saw the release of Ron Johnson and re-appointment of Mike Ullman after a failed turnaround.
For the last several months, J.C. Penney has maintained that the company has hired outside advisors for “expertise about how to best position the company from a financial standpoint during the transformation”.
“It is safe to assume this will continue as part of the work now underway to develop a game plan for the company going forward,” said a spokeswoman, but did not confirm that Blackstone was the adviser. The company is trying to raise $1 billion in cash, and is exploring a number of possibilities, which could include selling a minority stake in the company.
Bill Ackman’s firm, Pershing Square Capital, has an 18 percent stake in the company. Sliding shares have handed Ackman a loss of roughly $500 million, but he has reiterated his support for the company, and plans to see it through to profitability again, even if it means injecting more financing…
“[I do not see] a scenario in which we don’t work this thing out, and we’re prepared to put in more capital,” he said. ”I’ve spoken to the other big holders, a number of them, and if the money’s needed, the shareholders will put it up,” he added, although Reuters noted that he was unaware that his comments would be covered by the media. Ackman was addressing a business luncheon.
Ron Johnson was Ackman’s choice to lead the turnaround, and his subsequent failure to do so and resulting dismissal has left Ackman in a fairly awkward situation. Mike Ullman, who was ousted at Ackman’s behest to seat Johnson, is now serving as the interim CEO while the company crawls out of the various messes it’s involved in. ”The execution, the basic blocking and tackling of running a retailer — that’s what Ron (Johnson) didn’t have,” Ackman said.
Johnson was charged with reinvigorating the chain, and attempted to do so in almost every aspect. Everyday low prices were introduced in place of promotions, 40,000 employees were shed from the workforce, and the company invested substantial rennovations in about 700 of the firm’s 1,100 stores to install dedicated boutiques for one brand or another. Needless to say, the efforts didn’t work — the company lost $985 million last year, and ended up taking a $10 million bite out of its cash reserves, the first time it has had to do so since 1987.
J.C. Penney is reportedly working with Blackstone to partner with private equity firms to raise the $1 billion, as creditors have fled the company after the Standard & Poor’s index lowered its rating to one that implied vulnerability to non-payment.