J.C. Penney rescued. Will it now find success and save the mall, too?
J.C. Penney announced yesterday that it has reached an agreement in principle with two of its landlords on a near eleventh-hour deal that will help the company avoid liquidating its business, saving about 70,000 jobs in the process.
Simon Property Group and Brookfield Property Partners will pay $800 million for the retailer — $300 million in cash and $500 million in new term debt. The two will acquire “substantially all” of Penney’s operating and retail assets valued at $1.75 billion.
Penney will also get an additional $2 billion in revolving credit from Wells Fargo once the deal is done, which would leave the retailer with $1 billion in cash to go forward with.
As part of the plan, a group of equity and hedge funds identified as first lien lenders will acquire 161 of the Penney’s real estate assets and all of its owned distribution centers.
“We have determined that an agreement with Brookfield and Simon, as well as the formation of separate real estate investment trusts owned by our First Lien Lenders, is the best path forward to maximize value for our stakeholders, ensure we keep the most stores open and associates employed,” said Jill Soltau, Penney CEO, in a statement.
“As we continue to move through the sale process, our focus will remain on serving our customers and working seamlessly with our vendor partners,” said Ms. Soltau. “We have been a trusted partner to all of our stakeholders since 1902, and we expect to continue that track record for decades to come.”
The deal as announced by Penney seemed in danger less than two weeks ago. A lawyer representing the retailer before the bankruptcy court said that talks with the landlords had stalled as lenders to the retailer objected to what was viewed as a lowball price.
At the time, Joshua Sussberg of Kirkland & Ellis said, “Our lenders are no longer going to be held hostage. Time is not our friend [to avoid liquidation].”
This is not the first time that Simon and Brookfield have joined together to acquire a tenant retailer. The two, along with Authentic Brands Group, own Aeropostale and Forever 21.
- JCPenney Reaches Agreement in Principle with Brookfield Property Group and Simon Property Group to Acquire Retail and Operating Assets – J.C. Penney Company, Inc.
- Does J.C. Penney still have a future? – RetailWire
- Simon sees a big and profitable upside in acquiring retail tenants – RetailWire
- Is Forever 21 a wise investment for its new mall landlord owners? – RetailWire
- Why did mall landlords step in to save Aeropostale? – RetailWire
DISCUSSION QUESTIONS: Do you think J.C. Penney will be in a more secure financial, if not competitive, position to run its business once the deal with Simon and Brookfield is complete? Will Penney’s new owners find success with the deal and will ownership help them stabilize their mall properties in the process?