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September 26, 2013 7:24 pm
Things at JC Penney were supposed to calm down after activist investor Bill Ackman left the store. But shareholders have been on a rollercoaster ride this week, culminating with the news late on Thursday that the department store was selling up to 96.6m shares, or nearly a third of the company, in a public offering. JC Penney is trying to recover after a disastrous turn under Ron Johnson, the former Apple executive brought in by the activist investor to liven up the brand. Mr Johnson was fired and Mr Ackman left the board and sold his shares.
Concerns emerged this week about the company’s turnround after a research report from Goldman Sachs (whose investment banking arm will underwrite the share sale) forecast slower-than-expected improvement in sales and the likelihood that management would look to build a bigger cash cushion. (Goldman arranged a $2.25bn loan in May.) Shares plunged 15 per cent on Wednesday. On Thursday, they rose when the company said that it was pleased with its progress and predicted that comparable-store sales trends coming out of the third quarter and through the fourth quarter would be positive. Shares were down another 4 per cent in late-day trading to $10.
If there is good news here, it is that the equity sale would give JC Penney plenty of cash to get through the holiday season. The company would also avoid the costly interest payments of raising more debt. But the move is very expensive. When the loan was being arranged earlier this year, for example, shares were about 50 per cent higher. And the confusion and volatility of the last few days shows that management mishandled the announcement. Maybe Mr Ackman was right to bail out.
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