JC Penney board erupts into fight over next CEO

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Mike Ullman and Bill Ackman

The board of J.C. Penney erupted into a fight over the retailer's future on Thursday, as hedge fund manager Bill Ackman demanded a faster search for a new CEO and the board countered that he was being "disruptive and counterproductive."

In April, Penney abruptly dismissed former Apple executive Ron Johnson, and brought on Mike Ullman to replace him on an interim basis. Yet in a letter to Penney's board obtained by CNBC, hedge fund manager Bill Ackman — one of the company's biggest investors — voiced frustration that the process to fill the job permanently has not advanced quickly enough. He wants a new chief installed within the next 30-45 days, the letter said.

Saying that he was "very concerned" about the company's future, the hedge fund manager pressed the board for a clear succession plan — expressing concern that the process had taken as long as it has given J.C. Penney's widening problems.

"Considering the scale of J.C. Penney, the seriousness of the issues it faces, and the complexity of its business, there are only a handful of executives with sufficient talent and experience to take on the CEO role," Ackman wrote in his letter. "We need a CEO with extensive, ideallydepartment-store retail experience, strong operational skills, and a strong public company track record."

According to Ackman's missive, former CEO Allen Questrom has conditionally agreed to return as the company's chairman.

In an interview with CNBC, however, Questrom said that he would only consider a return to the embattled retailer under the right conditions — adding that he would not come back under hostile circumstances. The search for a new CEO should not take more than 30 to 45 days, as there are probably not more than five people who'd be qualified for the job, Questrom said. He also said he was strongly in favor of CEO Ullman at the time he was re-hired in April.

The company has "such a great history, you wouldn't want to give up until it's dead," Questrom told CNBC.

In a letter released after market close Thursday, the current chairman said the board "strongly disagrees" with Ackman.

"Mike is the right person to rebuild" Penney, Thomas Engibous said. Penney shares fell 1.5 percent in after-hours trading following the letter.

Meanwhile, Wall Street has increasingly soured on the beleaguered retailer. Macquarie retail analyst Liz Dunn said Penney was in dire need of "a big turnaround" after a series of failed attempts to lure back wayward customers. Dunn added that the company was running out of time to get it right.

The company's stock, traded on the New York Stock Exchange, jumped as much as 8 percent on the news, although it is still down more than 36 percent since the start of the year.

The following is the full text of the letter:

To My Fellow Directors:

I am very concerned about the future of J.C. Penney. While I supported the decision to bring back Mike as an interim CEO, it was based on Tom's statement that we would immediately launch a search process for a long-term CEO.

It was not until the July 22nd board meeting, nearly four months later, that the board agreed to make the succession issue part of the agenda. More than two weeks have passed since the formation of the search committee and we just hired a search firm. My understanding is that the search firm intends to begin a process of interviewing directors individually to build a consensus as to the type of CEO we are looking for. This will take weeks in light of summer schedules, and is not a prudent use of time.

Considering the scale of J.C. Penney, the seriousness of the issues it faces, and the complexity of its business, there are only a handful of executives with sufficient talent and experience to take on the CEO role. We need a CEO with extensive, ideally department-store retail experience, strong operational skills, and a strong public company track record. When non-competes, geographical considerations, and other personal and timing issues are considered, the number of potential CEO candidates is quite limited.

Allen Questrom, who saved the Company once before – the stock rose from $13.94 to $39.10 during his four-year tenure – has agreed to return as Chairman of the board and assist in the turnaround as long as we hire a CEO that he supports. Allen believes that a thorough vetting of the limited potential available candidates can be accomplished in 30 to 45 days.

In light of the above, and as J.C. Penney's largest shareholder, I strongly urge that we immediately put together a short list of candidates, determine their interest level, and schedule a fast-track

interview process with the board. There is no reason that this process could not be completed in the time frame that Allen recommends.

We can't afford to wait.

Sincerely,

Bill

--Reporting by CNBC's Scott Wapner and Becky Quick; writing by Javier E. David