Penney shares dip on battle vs. activist

NEW YORK (CNNMoney.com) -- Shares of department store operator JC Penney eased Monday after the company adopted a plan to combat an activist shareholder.

Shares of Plano, Texas-based Penney (JCP, Fortune 500) slipped more than 2% to $33.11 in late trading after falling as low as $32.47 earlier in the session.

Pershing Square, a large hedge fund run by activist investor Bill Ackman, disclosed in regulatory filings last week that it owns 16.5% of Penney's common stock. In a separate filing, Vornado Realty Trust, a Maryland real estate investment trust, said it holds a 9.9% stake in the retailer's common stock.

The adoption of the plan,also known as a poison pill, came "in light of recent rapid accumulations of a significant percentage of the company's outstanding common stock," Penney said in a regulatory filing.

The plan kicks in if any person or group buys more than 10% of the company's common stock, or tries to expand existing stakes beyond 10%, according to the filing. It has a life span of one year.

Despite the dip on Monday, shares of Penney have been on a tear since falling to a low of $19.50 in late August. The stock is up nearly 24% so far this year.

The disclosures raised speculation that Ackman, who was involved in a drawn-out proxy battle with Target (TGT, Fortune 500) last year and forced the sale of fast-food giant Wendy's, will shake things up at Penney.

Analysts at Barclay's Capital said last week that they remain optimistic about Penney's sales growth, but downgraded the stock to "equal weight" from "overweight" on unspecified distractions ahead of the key holiday shopping period.

"As we are heading into the important holiday selling season, where the company earns almost two-thirds of its annual profits, we are concerned that management may be distracted and miss an opportunity for sales and profit gains," Barclays analysts wrote.

Same-store sales, an important gauge of a retailer's health, increased 5.1% for the five-week period ended Oct. 2, the company said, topping its own expectations.

Morningstar analysts said in a research report that they do not expect Pershing Square to make a significant impact on J.C. Penney's operations, though they acknowledged that "financial engineering" remains a possibility.

"We do think Pershing will shake things up," the Morningstar analysts said. "At a minimum, we believe real estate will be one of the ways Pershing will attempt to increase the value of its stake."