By  on August 18, 2013

William Ackman of Pershing Square Capital Management is keeping his options open, but J.C. Penney Co. Inc. remains in the driver’s seat.

The two entered into a registration rights agreement on Aug. 13 setting forth the procedures for if and when Ackman elects to sell his shares in the company. That agreement was made public on Friday in a regulatory filing with the Securities and Exchange Commission.

In a registration request, those shares would then be registered as a secondary public offering. Ackman can request his first registration beginning on Nov. 20.

Citi’s broadlines analyst Deborah Weinswig said Friday that the question of whether Ackman will or won’t sell could serve as an “overhang” on Penney’s stock. Shares of Penney’s fell 3.1 percent on Friday to close at $13.40.

Weinswig also said that Vornado Realty Trust has “stated that it is looking to liquidate its position” in Penney’s as well.

Executives at both Pershing and Vornado did not return a request for comment.

Ackman, who resigned his Penney’s board seat a week ago, has a 17.7 percent stake in the retailer, or 39 million shares. Vornado holds 6.1 percent of Penney’s, or 13.4 million shares. Vornado sold a block of 10 million of Penney’s shares in March after the retailer’s posted full-year results under the tenure of former chief executive officer Ron Johnson that left the company with a $1 billion loss and a 25 percent decline in sales. At the time, Vornado said it sustained a $225 million loss on its sale of Penney’s shares.

Vornado’s chairman Steve Roth is also a Penney’s board member.

It couldn’t be determined if Roth would consider giving up his board seat at Penney’s if he elected to sell his stake in the retailer.

When Ackman resigned from Penney’s board on Aug. 12, the company said it added as a director Ronald Tysoe, former vice chairman of Federated Department Stores Inc. (now Macy’s Inc.). The retailer said it plans to add another director in due course.

Under the terms of the registration rights agreement, Ackman can make no more than four requests to Penney’s to register the sale of his restricted common stock. He is limited to two requests per 12-month period, and each request must be for at least 5 million shares. The agreement no longer applies should he own less than 5 percent of Penney’s stock.

Certain blackout periods begin on Nov. 20, when Penney’s has the right to postpone granting a registration to Ackman or require him to refrain from disposing of shares for a period of no more than 90 days.

Finally, should Penney’s elect to register any of its stock, the company agreed to give notice to Ackman that would allow him the option to offer his shares as well. That registration by Penney’s would likely give other registration rights holders the option of selling their stakes at the same time as well, said Joel I. Frank, an attorney in the corporate practice at Wilk Auslander.

Frank said Penney’s and Ackman used a standard registration rights agreement. He emphasized, “There’s no guarantee that there would be a sale of shares of the stock. This agreement provides the potential seller greater flexibility than other [stock selling rules] that have limitations, such as volume amount.”

Frank also addressed the speculative issue of whether Roth, if he sells his stake, might leave the Penney’s board. The attorney said that would depend on whether Penney’s has a requirement that board members own shares of the retailer. Some companies have that requirement as a way of showing that “board members have faith in the company,” Frank said.

Restricted stock can’t be sold without a registration with the SEC.

According to Noah J. Leichtling, an attorney in the corporate practice at Katten Muchin Rosenman, “These arrangements are done to effect orderly market transactions. They are also done in compliance with SEC regulations for stock of this nature.”

Ten days ago, Ackman and Penney’s board were involved in a directors’ conflict in which Ackman sought the ouster of board chairman Thomas Engibous and the acceleration of a ceo search to replace current ceo Myron “Mike” Ullman 3rd. Ackman added fuel to the fire when he made public letters he sent to the board outlining his dissatisfaction with the pace of change.

Ackman lost that fight when Penney’s board decided they are in full support of the efforts of both Engibous and Ullman.

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