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 Tuesday.
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 comment.
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 price.
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.
(Reporting by Phil Wahba and Ilaina Jonas in New York and Svea Herbst-Bayliss in Boston; Editing by Phil Berlowitz)