* Johnson has until end of year - source
* Shares fall nearly 11 percent
By Phil Wahba and Svea Herbst-Bayliss and Ilaina Jonas
March 5 J.C. Penney Co Chief Executive
Ron Johnson has only to the end of the year to turn around the
ailing retailer and stem a massive decline in sales or risk
being fired, a person familiar with the board's thinking said on
Directors are leaving little doubt that there is a fresh
sense of urgency after Penney reported terrible holiday sales
numbers last week and board member Steven Roth's Vornado Realty
Trust dumped 10 million shares in Penney.
That move, more than anything else so far, is being
interpreted as a clear shot across the bow to Johnson that
investors' patience is running out, the person familiar with the
board's thinking said, speaking on condition of anonymity
because the board's discussions are private.
Penney shares plunged 10.6 percent to $14.96 on Tuesday in
the wake of that Vornado share sale, touching lows last seen
four years ago. A Penney spokeswoman declined to comment.
While Johnson has announced ambitious plans, the makeover
has not resonated with longtime customers and failed to pull in
new clients. Governance experts said the Vornado share sale
would shake confidence even further.
Vornado said in a filing on Tuesday it had sold the shares
for $16.03 apiece. It still owns 6.1 percent of Penney shares.
"By selling stock, you're sending a questionable signal to
the marketplace," said Charles Elson, director of a corporate
governance center at the University of Delaware, noting how
unusual it is for a company director to sell shares, let alone
such a big transaction.
Even though Roth sold off a significant chunk of Penney
stock, there is no indication that he will be leaving the board,
the person familiar with the matter said.
David Tawil, a hedge fund manager who is shorting Penney
shares, said that big investors have little choice but to stick
with Johnson for now.
"They have already placed so much into this strategy that
they can't afford to let him go immediately. There is no other
retailer that can pull off this store-in-a store concept. So
either they abandon the concept entirely, and then you might as
well put Penney into liquidation, or they stick with him for
now," he said.
One person familiar with the matter said that Bill Ackman's
Pershing Square did not buy the Penney shares Vornado sold.
Ackman, whose $12 billion Pershing Square Capital Management
is Penney's biggest shareholder, was personally involved in
bringing Johnson to Penney from computer company Apple. Ackman
joined Penney's board at the same time Vornado's Roth did.
A spokeswoman for Ackman did not return an email asking for
Last week, Penney said sales fell 28.4 percent during the
holiday quarter. Since then, its debt has been downgraded
further into junk status, and top Wall Street firms lowered
their price targets.
Part of Vornado's decision to sell may have been driven by
internal pressures. Investors have criticized the group for
focusing too much on non-core businesses.
Vornado, which chiefly owns retail and office buildings in
New York City and Washington, has been trying to simplify its
strategy. Roth said in a letter in April that the company would
consider a range of options to boost its languishing stock
Just last week, Vornado CEO Michael Fascitelli said he would
step down next month but still remain on the board. Roth will
resume his former position as CEO upon Fascitelli's exit. On the
same day, Vornado said its loss on its Penney investment would
amount to more than a quarter of a billion dollars.
"Somebody's got to pay the price," said Richard Imperiale,
whose firm Uniplan Investment Counsel Inc owns Vornado shares.
"They been under a lot of criticism and pressure for doing these
less than mainstream real estate deals, and more importantly not
showing any value add."
The sale of Penney shares pushed Vornado's stock 3.4 percent
higher to $84.11 on Tuesday.
It was unclear if Vornado plans to sell its remaining stake
or if it would hang on to the rest of its stock for the chance
of reaping any future benefits.