By and  on April 1, 2005

NEW YORK — Amid indications that the management of J.C. Penney Co. will resist a takeover attempt by private equity firms, the national retailer’s stock shot up 8.4 percent on Thursday.

Myron Ullman 3rd, Penney’s chairman and chief executive officer, said in a statement, “We have developed a long-range plan that will be discussed with our investors at our analyst meeting on April 19 and 20. We believe this long-range plan lays out a strong set of goals and strategies for taking J.C. Penney to a leadership position in the retail industry and will deliver value to our investors.”

Ullman did not comment directly on reports that Cerberus Capital Management LP and the Carlyle Group, along with another private equity player, were contemplating a move on Penney’s in a $16 billion to $18 billion leveraged buyout.

But Merrill Lynch analyst Daniel Barry said in a research report that a potential deal between Cerberus-Carlyle and Penney’s “has validity” because Vanessa Castagna, the former number two in charge of Penney’s, is joining Cerberus as a senior member of its operations team and executive chairwoman of Mervyn’s department stores, which Cerberus partly owns.

Barry speculated that the deal’s price tag might be higher than the $16 billion to $18 billion number floated in the market on Wednesday, citing improved margin opportunity at Penney’s. “EBIT margin was 7.2 percent last year, up from 1.2 percent in 2000, and our forecast is 7.9 percent this year,” Barry wrote. “New management has said that its target is 8 percent to 10.5 percent.”

The analyst said Penney’s catalogue/Internet division has “double-digit growth potential and should command a premium to the company itself.”

In addition, Barry wrote that, because of Cerberus’ ownership of Mervyn’s, it could convert some of those stores to Penney’s locations and create “value that Penney could not do on its own.”

Barry concluded that he “expects [Penney’s] management to contest the offer, possibly by buying back a large amount of stock.”

Ullman, who succeeded Allen Questrom at Penney’s last year when the board passed over Castagna, is a takeover veteran, having led the unsuccessful fight against Federated Department Stores’ purchase of R.H. Macy. Ullman was ceo of Macy’s.

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