DALY CITY, CA - FEBRUARY 28: Customers walk into a JCPenney store on February 28, 2013 in Daly City, California. J.C. Penney Co. reported a 31.7 percent drop in fourth quarter earnings with a net loss of $552 million, or $2.51 per share compared with a loss of $87 million, or $0.41 one year ago. (Photo by Justin Sullivan/Getty Images)
The battle over J.C. Penney's future just got uglier.
Activist investor Bill Ackman said Friday that he has lost confidence in J.C. Penney's board and that its chairman should be replaced. Penney Chairman Thomas Engibous fired back and called Ackman's comments inaccurate.
The exchange adds more fuel to an unusually public squabble between Ackman and the rest of J.C. Penney's board over how quickly it should replace CEO Mike Ullman. Ackman's investment firm, Pershing Square Capital, has a nearly 18 percent stake in Penney and he sits on the company's board of directors.
Meanwhile, investment firm Perry Capital, which owns 7.26 percent stake in Penney, came out in support of Ackman in a letter released in a regulatory filing and urged the board for a change in management.
The disagreement is over how long it will take to find a new CEO for J.C. Penney. Ackman says the process should take 30 to 45 days. The board has said CEO Mike Ullman is the right person for the job for now.
The fight could be a distraction as Penney tries to undo the damage done to its business by a failed makeover spearheaded by its previous CEO.
In a lengthy letter to the board, Ackman complained that Chairman Thomas Engibous didn't call a proper meeting to discuss Ackman's views that J.C. Penney's search process should be speeded up.
"Boards must have the ability to deliberate openly amongst one another so that all points of view can be adequately discussed," he said. "By not calling a meeting, Tom prevented the board from properly functioning and fulfilling its fiduciary duties."
He also questioned the board's hiring and firing practices and "aggressive" inventory purchases.
Engibous said in a written statement that Ackman's comments were "misleading, inaccurate and counterproductive."
"The Board is focused on the important work of stabilizing and rejuvenating the business. It is following proper governance procedures, and members of the Board have been fully informed and are making decisions as a group," the statement quotes Engibous as saying.
Ackman has suggested former Allen Questrom, who was Penney CEO from 2000 to 2004, should replace Engibous. Questrom said Thursday that he would rejoin the company but not under a hostile board situation and only if he agreed with the choice of the next CEO.
In a letter to Penney's board, Perry Capital CEO Richard Perry urged the board "to take immediate and proactive steps to improve the financial and operational management of the company."
He wrote that Perry Capital would be "very supportive" of bringing back Questrom and Ken Hicks, who had been a Penney executive until 2009. Hicks is now president and CEO of Foot Locker Inc.
"Given the urgent nature of the situation, I am releasing the letter publicly so that other shareholders who feel the same way can express their opinions directly to the board," Perry wrote.
Ullman, who had been Penney's CEO from 2004 to 2011, took back the reins in April. He took over from Ron Johnson, who was supported by Ackman but was ousted after 17 months on the job after his radical makeover of the chain led to massive losses and sales declines.
Ullman has been working to stabilize the business by bringing back basic merchandise and more frequent sales eliminated by Johnson in a bid to attract younger, hipper customers. But many analysts believe that while traffic is improving, there has been no evidence of a turnaround yet as the company heads into the bulk of the critical back-to-school shopping period.
Even the home area, which was Johnson's project and features a slew of trendy new names like Jonathan Adler and Michael Graves, has failed to resonate with shoppers, analysts say. Penney was counting on the new home area, launched this spring, to reinvigorate customer traffic.
Moreover, concerns are growing about Penney's financial liquidity.
Analysts had expected Ullman's reign the second time around would be transitional until Penney hired a replacement.
The public battle between Ackman and the board chairman has had spectators from all sides weighing in, including Howard Schultz, Starbucks founder and CEO. During a phone interview with The Associated Press late Thursday, Schultz defended Ullman, who serves as a member of Starbucks board, and lambasted Ackman.
He said he had never seen anything like a scenario where a board member leaks a critical letter without first speaking to the CEO in question. He said he found it "perverse" that Ackman was pushing for new management when he was the one who pushed the board to hire Johnson, with disastrous consequences.
"Mike has been working tirelessly to save the company," Schultz said.
In the letter released Friday, Ackman acknowledged that making public his letter Thursday was "an extraordinary step."
"In my history as a board member of many public companies over the last 15 years, I have never before released a public letter to a board of which I was a current member," he wrote. But he said he used it as "the last resort" after trying to negotiate a resolution of his concerns about the recruitment process.
Citi Investment Research analyst Deborah Weinswig reiterated in a note published Friday that she believes J.C. Penney needs a "dream team" in order to turn its fortunes around and she says "time is of the essence." Weinswig, once a cheerleader of the company, downgraded the stock to "Sell" from "Neutral" last week.
Plano, Texas-based Penney is scheduled to report second-quarter results scheduled to be released Aug. 20.
Shares fell 79 cents, or 5.8 percent, to $12.87, giving back most of the gains they made Thursday upon the first disclosure of Ackman's letter. Earlier in the day they touched a 52-week low of $12.34.