J.C. Penney Offers A ‘Poison Pill’ Rights Agreement, Citi Says Sell

J.C. Penney Company, Inc. (NYSE:JCP) announced a shareholder rights program yesterday that seeks to protect the company from a takeover attempt. A new report on the company, out of Citigroup Inc (NYSE:C), takes a look at the likely effect of the new scheme. Unfortunately for shareholders, the analyses don’t see many positives in the poison pill.

J.C. Penney Offers A 'Poison Pill' Rights Agreement, Citi Says Sell

The analyst, Deborah L. Weinswig, maintained her price target of $11 on the company and rated it a Sell. On today’s market, shares in the company were flat, trading at $13.20 per share at time of writing. Shares in the struggling retailer have been dropping in recent months on the firm’s weak earnings and the failure of its turnaround plan.

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J.C. Penney Rights Plan

The J.C. Penney Company, Inc. (NYSE:JCP) shareholder rights plan is somewhat complex, but essentially it boils down to the distribution of rights to shareholders. Those rights can only be used if a shareholder, or a group, has control of more than 10% of the company. The rights will allow investors to acquire additional shares valued at $110 in the company at an exercise price of $55.

The plan would probably stop any attempt any acquisition attempt at the company, but that may not be the best thing for shareholders. If the company were to be the subject of an acquisition attempt there would likely be a bump in share price. If the Citigroup analysis bears out, there’s little else for J.C. Penney Company, Inc. (NYSE:JCP) shareholders to hope for.

Ackman out in the cold

This, as Weinswig points out, is not the first time that J.C. Penney Company, Inc. (NYSE:JCP) has instituted a voter rights plan. The company brought in a similar poison pill back in 2010 in order to stop the expansion in the stake held by Bill Ackman’s Pershing Square Capital. That stake is what has caused most of the recent drama at the company.

Bill Ackman’s share of J.C. Penney Company, Inc. (NYSE:JCP) amounts to more than 17%, but it won’t trigger the poison pill plan because his stake is covered by already outstanding agreements. The hedge fund manager’s attempts to reform the company have slowed down since he resigned from the company’s board last week.

The shareholder rights plan is not particularly good or bad for J.C. Penney Company, Inc. (NYSE:JCP). The company’s shareholders might miss the slim chance of a takeover bid boosting share prices, but J.C. Penney’s lagging numbers will almost certainly be of more concern, as they are to Citigroup Inc (NYSE:C)