J.C. Penney Adopts "Poison Pill" Stockholder Rights Plan
August 23, 2013,
PLANO, Texas-The J.C. Penney board of directors has adopted a stockholder rights plan generally referred to by the investment community as a "poison pill."
According to a filing with the U.S. Securities and Exchange Commission, the plan restricts any person or group from acquiring 10 percent or more of the retailer's outstanding common stock, and restricts current owners of 10 percent or more of the stock from purchasing any additional shares. The plan is an attempt to protect J.C. Penney shareholders in event of a hostile takeover. In the words of the filing, it was adopted "to protect against any potential future use of coercive or abusive takeover techniques and to help ensure that the Company's stockholders are not deprived of the opportunity to realize the full and fair value of their investment."
The filing said rights have been issued for each share of common stock at 50 cents par value, in effect enabling current shareholders to purchase additional shares at half their current price. As explained in a definition of "poison pill" on the Investopedia website, the plan is an attempt to make J.C. Penney's stock less attractive to a potential acquirer by diluting the shares the acquirer buys after the purchase.
A J.C. Penney statement said the plan "was not adopted in response to any effort to acquire control of the company." The plan will continue in effect until Aug. 20, 2014, unless the rights are redeemed or exchanged for shares of common stock at an earlier date.
Press reports said the poison pill is J.C. Penney's attempt to prevent another activist shareholder--such as Bill Ackman, head of Pershing Square Capital Management, which currently owns about 18 percent of the retailer's outstanding shares--from acquiring enough shares and using that stake to pressure the board. Ackman publicly took on the board over the past two weeks for not accelerating the search for a successor to CEO Myron Ullman III, and called for the replacement of current board Chairman Thomas Engibous by Allen Questrom, J.C. Penney's former chairman and CEO.
However, the statement added that the plan's provisions would not take effect as a result of activity by Pershing Square Capital Management or Vornado Realty Trust, which owns 6.1 percent of the outstanding shares.