J.C. Penney Company, Inc. (NYSE:JCP) entered into a Registration Rights Agreement with Ackman's Pershing Square on August 13th that allows the latter to register its stock for sale. Though the agreement is effective immediately, Pershing Square may have to wait for a few months to request its first registration “given Bill Ackman's recent position on JCP’s Board” says a report from Citi Research by analysts Deborah L Weinswig and Nathan Rich.
Pershing Square's stake in J.C. Penney
According to the analysts, the agreement reflects Ackman's Pershing Square intention of selling its stake in the company. However, analysts believe that the stake will be sold over a period of time. Pershing Square owns around a 25 percent stake of which 17.7 percent is through direct ownership.
For investors, it may not be good news as they will always be guessing if Pershing Square will sell its stake or not. Also, Vornado Realty Trust (NYSE:VNO) announced recently it will be selling its 6 percent stake in J.C. Penney Company, Inc. (NYSE:JCP).
Details of the agreement
The agreement allows a maximum of four registration requests, and only two per 12 months; also Pershing Square is required to register a minimum of 5 million shares. Along with this, Pershing Square is also subjected to blackout provisions, and the contract ends when the Pershing Square stake is reduced to less than 5 percent of the stock.
The Blackout Provision allows J.C. Penny to postpone or refrain Bill Ackman's Pershing Square from selling its stake for a period of no more than 90 days. J.C. Penney Company, Inc. (NYSE:JCP) can avail itself of a maximum of three blackouts in a period of 12 moths and “no more than 90 days blacked out in aggregate.”
Also, J.C. Penney Company, Inc. (NYSE:JCP) may postpone the registration if the company’s board is of the opinion that the registration could “materially impede, delay, or interfere with any material transaction that is pending or if JCP is in possession of material non-public information that the disclosure of which would not be in the best interests of the company.”
Registration Rights Agreement also has a Piggyback Provision, according to which J.C. Penney Company, Inc. (NYSE:JCP) will have to inform in writing to Pershing Square of its plan to register any of its shares. The notice must be given at least 20 days before the filing of the registration. Analysts are of the opinion that this provision helps Pershing Square to plan its offering in an organized manner and derive maximum advantage.