By Suzanne Kapner and Alexander Gladstone
Mall owners Simon Property Group Inc. and Brookfield Property
Partners LP agreed to acquire J.C. Penney Co. out of bankruptcy for
$800 million, keeping the beleaguered department-store chain alive
amid the coronavirus pandemic.
Simon and Brookfield, J.C. Penney's landlords, have reached an
agreement in principle to buy the chain, which filed for chapter 11
in May after the pandemic shut down nonessential shopping across
If approved in bankruptcy court, the deal will prevent the
closure of hundreds of locations across malls and shopping centers
that face rising vacancies due to Covid-19 restrictions.
A group of lenders including H/2 Capital Partners LLC, Sculptor
Capital Management Inc., Brigade Capital Management LP and Sixth
Street Partners have signed on, betting that Penney can make money
selling clothing, cosmetics and cookware despite the stark
challenges facing American retail.
The landlords will own about 490 of Penney's remaining 650
stores outright, a person familiar with the matter said. They will
lease 160 other stores plus distribution centers from the lenders,
which will own those assets in return for forgiving some of
Penney's $5 billion in debt. The company had about 850 locations at
the time of its bankruptcy filing and has closed some for good.
Since the coronavirus began spreading, brick-and-mortar
retailers have been among the hardest hit as authorities limited
social gatherings and shoppers stayed home fearing contagion.
Combined with competition from Amazon.com Inc., the pandemic
hastened a reckoning for many retailers struggling to adapt to
changing shopping habits.
Retail bankruptcy filings quickly piled up this year as apparel
companies including Penney, Neiman Marcus Group Ltd. and J.Crew
Group Inc. turned to chapter 11, hoping to restructure their debts
and weather the downturn. Others, such as New York & Co. and
Lord & Taylor, are liquidating.
Penney had struggled long before the health crisis as various
leaders shifted strategies. In its heyday, it was known for good
quality and value, and was the place middle-class consumers went to
buy a prom dress, first suit or home décor.
"For many years, J.C. Penney was America's department store,"
said Ken Hicks, the retailer's former president and chief
merchandising officer. "But they fell off the map."
Loyal Penney shoppers said they were overjoyed the chain will
stay in business.
"There is not one thing that store has that I don't need," said
Cherie Corso, who visits the Penney store near her home in Pelham,
N.Y. at least once a week for shoes, dresses, towels, sheets and
makeup. "I'm so happy they aren't going out of business."
Penney's deal means continued employment for most of its 70,000
employees. It also marks Simon's third acquisition in four years of
a bankrupt tenant in partnership with Brookfield after the property
owners teamed up to purchase apparel retailers Forever 21 Inc. in
February and Aéropostale Inc. in 2016.
In recent months, Simon, in particular, has been active in
bankruptcy acquisitions, teaming up with brand licenser Authentic
Brands Group LLC to buy apparel retailers Brooks Brothers Inc. and
Lucky Brand Dungarees LLC out of chapter 11.
Simon, the biggest U.S. mall owner, and Brookfield are paying
roughly $300 million in cash and assuming $500 million in debt,
Penney lawyer Joshua Sussberg said during a hearing Wednesday in
the U.S. Bankruptcy Court in Corpus Christi, Texas. The
department-store chain will exit bankruptcy with an enterprise
value of $1.75 billion, he said.
The Wall Street Journal reported in August that Simon and
Brookfield were the leading contenders to acquire Penney in a
bankruptcy auction. They beat out competition from private-equity
firm Sycamore Partners Inc. and Saks Fifth Avenue owner Hudson's
Bay Co., according to people familiar with the matter.
Wells Fargo Bank NA has agreed to supply $2 billion in exit
financing to help lift Penney out of chapter 11, Mr. Sussberg said.
The company was flirting with collapse as recently as late August
when talks between its landlords and lenders broke down.
The company dressed middle-class American families for more than
a century but ran into problems over the past decade. Penney never
regained its footing after a failed makeover by former Apple Inc.
executive Ron Johnson did away with discounts and popular in-house
brands. Former Home Depot Inc. executive Marvin Ellison, who is now
CEO of Lowe's Cos., brought back appliances when he took the reins
at Penney and lost focus on apparel, the chain's core business.
Jill Soltau, who has been CEO since 2018, has refocused on
Penney entered bankruptcy proposing to split its retail
operations and its real-estate holdings into separate businesses.
The company was seeking bidders to take control of an operating
company that would hold Penney's intellectual property and most of
its stores. That is in essence what happened, with Simon and
Brookfield taking control of the operating company and the lender
group owning some properties.
--Andrew Scurria and Miriam Gottfried contributed to this
Write to Suzanne Kapner at Suzanne.Kapner@wsj.com and Alexander
Gladstone at email@example.com
(END) Dow Jones Newswires
September 09, 2020 18:34 ET (22:34 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
JC Penney (PK) (USOTC:JCPNQ)
Historical Stock Chart
From Dec 2020 to Jan 2021
JC Penney (PK) (USOTC:JCPNQ)
Historical Stock Chart
From Jan 2020 to Jan 2021