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Is JCPenney Actually Worth More Than $10 Billion? Why A Group of Shareholders Thinks So

A group of J. C. Penney Company Inc. shareholders are arguing that the retailer could be worth much more than it valued itself in bankruptcy court.

In a filing with the United States Bankruptcy Court for the Southern District of Texas, financial advisers CR3 Partners LLC — retained by equity holders who are seeking the appointment of an official committee in the Chapter 11 case — put forth a report that estimated JCPenney’s total enterprise value within the range of $8.2 billion and $10.2 billion.

According to the report, the bankrupt chain’s hard assets alone — consisting of real estate, cash and inventory — are worth $6.6 billion. Assuming $7 billion of estimated debt and liabilities, the advisers claimed that JCPenney’s pre-petition equity equates to a value of between $1.2 billion and $3.2 billion. They added that the company had undervalued its assets in the proposed sale to Simon Property Group and Brookfield Property Partners.

“In light of the forgoing analysis, it is my opinion that the debtors are not hopelessly insolvent,” CR3 partner William Snyder wrote in the filing. “Further, it is my opinion that the transaction the debtors are proposing materially undervalues the assets, as illustrated in our report and herein, and in a reorganization under Chapter 11, as opposed to the distressed sale currently being pursued by the debtors, the total enterprise value of the debtors’ business indicates a return to equity interest holders is reasonable.”

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Two weeks ago, JCPenney announced that it had reached a deal to sell its business to mall owners Simon and Brookfield at an enterprise value of $1.75 billion. That figure is $100 million higher than their original bid and roughly the same as the highest offer from an initial round of bidding in July. (At the time, private equity firm Sycamore Partners had proposed $1.75 billion to buy the 118-year-old chain.)

According to court documents, Simon and Brookfield’s cash contribution is about $300 million; the majority of JCPenney’s enterprise value is connected to financing rolled over by some of its existing lenders. In addition to the purchase of its operations, the department store is forming a separate real estate investment trust and a property holding company, including 161 of its 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 and position JCPenney to build on our over 100-year history,” CEO Jill Soltau said in a statement in mid-September. “The interest in our operations reflects our company’s strength and our loyal customer base.”

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