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JC Penney Gains on Prospects for Change

NEW YORK ( TheDeal) -- J.C. Penney Co. (JCP - Get Report) may have rid itself of its former chief executive Ron Johnson in the nick of time.

Though Johnson successfully enticed crowds to Apple Inc.'s sleek stores, he failed at J.C. Penney where customers wanted less of beautifully designed interiors and more of their dearly beloved coupons. As vendors tighten credit -- a sign that can auger bankruptcy -- Johnson's replacement Myron "Mike" Ullman has been summoned back to company after being shunted for Johnson in November 2011.

"It's too early to share next steps, but Mike [Ullman] plans to immediately engage with the Company's stakeholders, including a range of audiences -- customers, team members, suppliers, real estate, business partners, shareholders, etc. -- to analyze the Company's situation,'' said Joseph Thomas, a J.C. Penney spokesman, in an e-mail. "He will then develop a plan to improve performance moving forward."

J.C. Penney gained 2.3% to $14.41 in mid-morning activity. Shares plunged 12 percent on Tuesday, the first day of trading following the CEO switch.

While Thomas was touting Ullman's engagement with stakeholders, what he declined to say when asked was whether the company was considering hiring an accounting firm to conduct a cash flow assessment or a financial adviser to assist with a restructuring, or if J.C. Penney might sell off assets such as real estate, or even seek reorganization through a Chapter 11 bankruptcy filing.

Yet an industry source who specializes in retail restructurings and turnarounds said there is enough capacity on J.C. Penney's revolving credit facility to provide the retailer with the needed resources to keep the operation afloat.

The company could also consider selling some of its real estate, which includes more than 400 department store locations it owns, though the source ruled out converting real estate into a REIT. A successful REIT requires a top-notch credit rating, the source added, which J.C. Penney lacks.

What J.C. Penney will mostly strive its utmost to do is to avoid a Chapter 11 bankruptcy filing, however. One reason is the likely opposition of backer Bill Ackman, whose Pershing Square Capital Management LP has a nearly 18% stake in the retailer, although the hedge fund manager's star is likely on the descent since he brought Johnson on as CEO.
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