J.C. Penney Co Inc's largest shareholder, Bill Ackman, on Friday urged the company's board to replace its chairman, Thomas Engibous, sharpening a public dispute with fellow directors and drawing a sharp rebuke from the company.
The news came a day after Ackman pushed to more quickly replace Chief Executive Myron Ullman, who was brought back in April to stem sales declines blamed on Ron Johnson, Ackman's pick to turn around the struggling century-old department store chain.
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"I have lost confidence in our chairman's ability to oversee this board," Ackman said in an open three-page letter.
Penney shares fell 5 percent to $12.95 on the New York Stock Exchange.
The pressure comes at a bad time for Penney, which is preparing for the year-end holidays, the biggest selling season of the year.
In an earlier letter, made public on Thursday, the billionaire hedge fund manager behind Pershing Square Capital Management expressed frustration at the slow pace of the CEO search and pushed the company to name one in 30 to 45 days.
He also said that Allen Questrom, a former Penney CEO, would return as chairman if a CEO he liked was chosen. In an interview on Thursday on CNBC, Questrom said there were only a few people he thinks would be qualified for the CEO job.
In Friday's letter, Ackman said the board "has ceased to function effectively." It is not getting material information and does not have access to independent advice, he added.
He also said the board was not being consulted on material personnel decisions, noting that he had learned of the hiring of Debra Berman as senior vice president of marketing from a press release.
J.C. Penney fired back, calling Ackman's statements "misleading, inaccurate and counterproductive."
"The board ... is following proper governance procedures, and members of the board have been fully informed and are making decisions as a group. This includes the CEO search process, which is being conducted at an appropriate pace," said Engibous, the current chairman, in a statement.
"The board also continues to actively oversee management as it conducts the important work underway to rebuild the company," he added.
Engibous became chairman in January 2012. He was named to the board in 1999. He is the retired chairman of Texas Instruments and served as its CEO from 1996 through 2004.
Ackman also raised concerns about Penney's marketing, budgeting and disclosure of directors' activities outside the board, which he said might color their thinking.
Later on Friday, Perry Corp, which owns about 7.3 percent of Penney shares, expressed support for Ackman's strategy and urged the company to immediately seek to name Questrom as chairman and Ken Hicks as chief executive.
Hicks has been the chief executive at Foot Locker since 2009. He has served as the president and chief merchandising officer of Penney in the past.
Pershing Square owned nearly 18 percent of J.C. Penney as of March 31.
"The board shouldn't feel that they've got to act with a gun to their head in picking the CEO of a big business in a time of crisis. They've got to be able to take the time to make an informed decision," said Michael Peregrine, a partner at law firm McDermott Will & Emery who focuses on corporate governance issues.
Penney's credit default swaps also widened on Friday, in a sign that the market believes the chance of a default has increased.
(Additional reporting by Dhanya Skariachan and Madeline Will in New York and Lisa Baertlein in Los Angeles; Editing by Lisa Von Ahn and Chris Reese)