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CEO out at J.C. Penney. Private equity in?

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Enter private equity. Hopefully.

Ron Johnson is out at J.C. Penney Co. Inc.. The board, which is reinstating the man that Mr. Johnson replaced just 16 months ago, may hope that his tenure as chief executive at the mid-market department store will be forgotten by history. But that is unlikely. Last year sales fell 25 per cent, and the company burnt more than $800-million (U.S.) of cash. Mr. Johnson's strategy of "stores within a store" and limited discounts gained no traction, and the golden Martha Stewart may be forced from the stores, as litigation between J.C. Penney and Macy's continues.

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Mr. Johnson did not get a chance to see if sales could grow profitably off the new lower base in his second year. Last week, his former champion Bill Ackman, an activist who controls 18 per cent of J.C. Penney's stock, described the company's execution as a "disaster." This appears to have been the last straw.

Mr. Johnson was trying to do something that has almost never been done successfully: turn around a major retailer after it has aged into obsolescence. Perhaps he deserved more time. The fact that the shares, after a brief spike, sunk 10 per cent in late trading shows that firing Mr. Johnson will not solve any of the hard problems the company faces. But in the glare of the public markets, and with liquidity concerns never quite silenced, it was not to be.

The best solution now is a prompt sale to a private equity investor who could get the company out of the glare and provide it with financial muscle. Cerberus's combined retail and real estate play for Supervalu in 2006 and then again this year could be a template. Of course, if such a deal is closed, it will probably be at fire sale prices. There will be no happy ending for shareholders. And that may have never been possible, whoever was at the helm.

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