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JC Penney Surges on CEO Search (Update 1)

This story has been updated from 12:45 pm ET with new information.

NEW YORK ( TheStreet) - JC Penney (JCP - Get Report) shares surged as much as 10% on Thursday following a CNBC report that the troubled retailer is looking to replace CEO Myron "Mike" Ullman.

According to the report, the Plano, Texas-based company, with prodding from activist investor Bill Ackman, has initiated a search to replace Ullman, who reclaimed the CEO's position in April, following the departure of former Apple (APPL) executive Ron Johnson.

JC Penney shares closed up 6.7% to $13.66 on volume of about 49 million shares. The stock's average three-month daily trading volume is about 9.9 million shares. The stock was trading down 1.9% to $13.40 after the markets closed.

CNBC cited a letter it obtained, written by Ackman of Pershing Square Capital Management, who owns just under 18% of the company. In the letter, Ackman, who is also a director on JC Penney's board, expresses "frustration that the process to fill the job permanently has not advanced quickly enough," the CNBC.com article says.

However, in a statement issued late Thursday, JC Penney's Chairman Thomas Engibous expressed the company's displeasure with Ackman's actions.

"The board of directors strongly disagrees with Mr. Ackman and is extremely disappointed that his letter was released to the media at the same time that it was sent to the board," Engibous said in the statement.

"Mr. Ackman has been integrally involved in the board's activities since he joined two years ago," Engibous said. "This includes leading a campaign to appoint the company's previous CEO, under whose leadership performance [the company] deteriorated precipitously. His latest actions are disruptive and counterproductive at an important stage in the company's recovery."

JC Penney also said that while the company has made "significant progress" since Ullman returned as CEO, "it was understood that there would be an effort to rebuild the management team, including a search process to identify his successor."

JC Penney began that search process last month. Engibous emphasized that the company would be "careful and deliberate to ensure we find the right long-term leader," the statement said. "In the meantime, Mike and the leadership team will continue the work under way to improve the company's performance and get back on a path to profitable growth."

Ackman is demanding that a new CEO be in place within the next 30 to 45 days, according to the letter.

CNBC also reported that former CEO Allen Questrom agreed to return as the company's chairman, though later reports said Questrom needs "the right conditions" to come back.

The giant retailer's troubles seem to have intensified over the last week or so. As of Wednesday's closing price, shares were down 21% over the past week. The New York Post reported on July 31 that CIT Group (CIT) "abruptly stopped financing deliveries" from smaller manufacturers that sell to JC Penney. The company responded the following day saying the rumor was untrue.

Investors, however, remain skittish surrounding the stock over concerns the retailer's financial troubles are more dire than previously thought.

-- Written by Laurie Kulikowski in New York.

To contact Laurie Kulikowski, send an email to: Laurie.Kulikowski@thestreet.com.

>To submit a news tip, email: tips@thestreet.com.

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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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