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Investor Buys $54.5-Million Stake in Penney

Ralph Whitworth's purchase may increase pressure on the department store to sell Eckerd drugstores.

August 23, 2003|From Bloomberg News

Activist investor Ralph Whitworth purchased a $54.5-million stake in J.C. Penney Co., raising the possibility that the retailer will face increased pressure to sell its Eckerd drugstore chain.

Relational Investors, a San Diego money management company run by Whitworth and David Batchelder, bought 2.73 million J.C. Penney shares during the second quarter, according to a filing with the Securities and Exchange Commission.

J.C. Penney shares have declined about 14% this year, slowing Chief Executive Allen Questrom's effort to rebuild the nation's second-largest department store operator. Many investors think that Plano, Texas-based J.C. Penney would thrive if management sold the drugstores and concentrated on retailing general merchandise.

"Why not cash it in now and get people's eyes on the department store, where there has been a tremendous turnaround?" said Robert Olstein, president of the Olstein Financial Alert Fund, which owns about 1.3 million Penney shares.

Whitworth, the former chairman of an investor advocate organization called the United Shareholders Assn., declined to comment on his plans for J.C. Penney. Relational Investors often purchases small initial stakes in businesses and acquires additional stock while pursuing managerial or strategic changes.

El Segundo-based Mattel Inc.'s shares have nearly doubled in price since February 2000, soon after Whitworth bought into the company and CEO Jill Barad was forced out.

Questrom said in a conference call last week that he expected to be in a position to decide on Eckerd's future at year-end.

The drugstore business, acquired by J.C. Penney in February 1997 for about $3.3 billion, had operating profit of $54 million during the company's fiscal second quarter ended July 26, down from $73 million in the year-earlier period.

Questrom said in an Aug. 12 earnings release that Eckerd's sales and operating profits were "clearly disappointing."

J.C. Penney shares fell 24 cents to $19.88 on the New York Stock Exchange.

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