Does J.C. Penney still have a future?
There are no white knights coming to J.C. Penney’s rescue.
An attorney representing the bankrupt department store chain, Joshua Sussberg of Kirkland & Ellis LLP, said that negotiations between the retailer and Authentic Brands Group, Simon Property Group and Brookfield Property Partners hit a wall this weekend. That means Penney has nine days to work out a deal with lenders to acquire the business or it will be forced to close significantly more stores than it planned. The retailer started with 850 stores when it filed for bankruptcy in May and has since announced plans to permanently shutter 150 of those.
CEOs of both Authentic Brands and Simon have said in recent months that they are interested in acquiring once-successful retailers on the cheap. The two companies, sometimes joined by Brookfield, have acquired the Aeropostale, Brooks Brothers, Forever 21 and Lucky Brand businesses in recent years.
“We’re doing it because we, for one reason only, we believe in the brand and we think we can make money. If we didn’t believe in the brand and we didn’t think we could make money, we wouldn’t do it,” said David Simon, Simon CEO on the mall landlord’s second-quarter earnings call.
Apparently, the price that Mr. Simon’s company and its partners would be willing to pay to assure it makes money is too low for Penney and its lenders to stomach.
“Our lenders are no longer going to be held hostage,” Mr. Sussberg said in a court hearing yesterday. “Time is not our friend.”
Penney’s counsel said that lenders were open to negotiating a deal involving a swap of debt for equity to help the retailer stay in business.
Reuters reports that U.S. Bankruptcy Judge David Jones said in yesterday’s hearing that Penney needs to continue talks with lenders. Failing to do so, he told a shareholder, would result in “the death of an entity.”
Penney, which also received bids from Sycamore Partners and Hudson’s Bay Co., is reported to be in contact with those companies, although their initial bids were seen as inferior to that offered by Authentic Brands, Simon and Brookfield.
“We are going to do everything humanly possible to ensure that J.C. Penney will be around for the foreseeable future,” Mr. Sussberg told the court, according to Bloomberg.
- J.C. Penney sale talks stall, pushing retailer to brink – Reuters
- J.C. Penney Lenders Plan Takeover After Sales Talks Stall – Bloomberg/Yahoo Finance
- J.C. Penney Plans Chapter 11 Sale to Lenders as Other Bidders Balk – The Wall Street Journal
- Simon sees a big and profitable upside in acquiring retail tenants – RetailWire
- Who will come to J.C. Penney’s rescue? – RetailWire
- What’s J.C. Penney’s next move? – RetailWire
DISCUSSION QUESTIONS: Would a debt for equity swap with J.C. Penney’s lenders put the chain in a stronger position going forward than a lowball deal from other bidders? Do you agree that Penney is done if a deal is not made?