Kohl’s Corp. is in demand as bidders and investors clamor to change the shape of the company.
According to CNBC and other news sources, Kohl’s has been approached by Sycamore Partners and Acacia Research. CNBC stated that Sycamore would pay at least $65 per share for Kohl’s, a 39% premium to the stock’s last close, which was $46.84. CNBC also stated that Acacia, backed by activist investment firm Starboard Value, offered $64 a share for the retailer.
Two activist investment groups, Macellum Advisors and Engine Capital, have been pursuing significant changes in the board and strategy under which the company operates. Macellum and Kohl’s recently published letters detailing their views about the direction the retailer should take.
Macellum has issued a new letter to the Kohl’s board over the signature of Jonathan Duskin managing partner, noting:
“As you know, Macellum is a nearly 5% shareholder of Kohl’s and has spent multiple years trying to engage with the Company to catalyze enhanced value creation. The public letter we issued last week encouraged the board to initiate a comprehensive review of strategic alternatives, including a potential sale of Kohl’s to one of the many well-capitalized financial sponsors that we believed were – and remain – interested in acquiring the company. Despite another year of stagnation and more than two decades of underperformance at Kohl’s, the board quickly responded to us with a dismissive press release that referred to our assessment of potential suitors as “unfounded speculation.” Now, less than one week later, the board has validated our assessment by confirming expressions of interest after a $64 per share all-cash offer from Acacia Research Corp. and a reported approach from Sycamore Partners.
“While the board boasted last week that ‘Kohl’s strategy is producing results,’ the market’s extremely positive reaction to the expressions of interest confirmed this morning indicates to us that investors want an organized sales process. Multiple sell-side analysts also issued notes yesterday that acknowledge the superior value that can likely be obtained via a sale. In our view, the board cannot ignore yesterday’s approximately 35% spike in the Company’s share price and try to chill acquirers’ interest.
“Rather than cling to the status quo, we urge the board to immediately take the following steps to try to maximize value for all shareholders:
- Publicly commit to carrying out a robust process to review strategic alternatives;
- Form a special committee of independent directors to oversee the review, retain advisors and solicit proposals from all interested bidders, and;
- Invite a Macellum representative to join the board and lead the special committee, effectively providing credibility to the process.
“Though we believe Kohl’s could be a source of significant value with a significantly refreshed board, improved execution and an optimized balance sheet, we feel the best risk-adjusted path forward for shareholders right now is a credible and open process to evaluate a full sale of the company at an attractive premium. We are eager to lend our expertise and support this process if the board will extend us an invitation without onerous conditions and terms. “Candidly, we do not have faith in the current board to run this process on its own, nor do we believe the board is capable of objectively evaluating possible bids relative to its historically overly optimistic assessments of management’s standalone plans.
“In the interest of transparency, we are making this correspondence public. We hope the board responds to us in a constructive and timely manner. However, we reserve our right to hold the current directors accountable through an election contest or the appropriate legal channels if the board chills a value-maximizing sales process.”
Engine Capital issued a letter over the signatures of Arnaud Ajdler, managing partner Brad Favreau, partner saying:
“Engine Capital LP is a long-term shareholder of Kohl’s Corp., with an ownership position of approximately 1% of the company’s outstanding shares. As you know, we have previously urged you to publicly commit to conducting a full review of strategic alternatives, given the abysmal long-term performance of the company. Over the weekend, we read with interest multiple press reports stating that a Starboard-led consortium has offered $64 per share in cash for Kohl’s. When the board of directors of a company, whose stock has underperformed for so long, receives a credible offer at a 37% premium, it has a fiduciary obligation to aggressively pursue it, while openly considering all alternatives to maximize value. It can’t simply dismiss the offer and argue that the stand-alone plan will produce greater long-term value for shareholders.
“Kohl’s has significantly underperformed the S&P 500 and its peers over most relevant time periods, including since Ms. Gass became chief executive officer in May 2018 and since Peter Boneparth, Kohl’s’ chairman, became a director of the company more than 13 years ago. Given this sustained underperformance, time value of money and execution risk, we believe that ‘a bird in the hand is worth more than two in the bush.’ Starboard has a stellar reputation, its offer is credible, and we believe there are other parties interested in buying the company. The company’s tremendous free cash flows and significant real estate ownership, worth around $7 billion, make a transaction highly financeable. Therefore, we believe the board has all the ingredients necessary to create a competitive sale process that will maximize shareholder value. We urge the board to not delay further and pursue such a process immediately.”
