Department store Kohl’s has received a $9 billion private investment offer in a deal with an investment consortium backed by hedge fund Starboard Value, according to two people familiar with the matter.
The offer highlights the rising interest activist investors are showing in department stores, as brick-and-mortar retailers grapple with supply chain issues during the pandemic and competition. increasing competition from online sites. Retailer stocks have been under pressure over the past few years, while stocks of online sites, until recently, has skyrocketed.
Kohl’s is under pressure to improve its share price. The operating company Macellum Advisors, has a 5% stake in Kohl’s, urged the retailer in a letter last Tuesday to explore strategic alternatives, including discounts. That’s after it made similar criticisms of Kohl’s stock performance last year. Engine Capital hedge fund has also calling for Kohl’s to review the sale, along with other strategic initiatives.
Macellum’s quick receipt of the letter and the corporation’s offer could be the start of a jump to put pressure on Kohl’s to consider selling – or otherwise rapidly increasing the price of its stock. In response to Macellum’s letter, last week Kohl’s said it has confidence in its board and will “actively pursue the best interests of all shareholders.”
Private equity firm Sycamore Partners has also reached out to Kohl’s about a potential deal, according to one of the people familiar with the matter, as well as a second person close to the matter. The company is known for its acquisitions of retailers, including Staples and the Belk Department Store.
Understanding the supply chain crisis
Kohl’s, based in Menomonee Falls, Wis., and founded in 1962, is a department store that focuses on casual clothing, homeware, and sportswear. Unlike other retailers like Nordstrom, Kohl’s stores are typically found in smaller shopping malls rather than malls. That has made its real estate even more valuable as malls hit hard times.
A key question will be whether Starboard Corporation can secure the funds needed to finance the tender, especially in light of the challenges posed by past leveraged buyouts. retailers, such as Toys “R” Us, Payless and Neiman Marcus. Those transactions put retailers in debt, making it impossible for them to make the necessary investments as e-commerce has changed the retail landscape. All three ended up unable to pay their loans and filed for bankruptcy. Both Neiman Marcus and Payless went bankrupt, while Toys “R” Us was eventually liquidated.
Kohl’s stock has gained less than 4% over the past year, giving it a market capitalization of about $6.5 billion. Suggestions, first reported by The Wall Street Journal, will value the retailer at $64 a share, 37% higher than its closing price of $46.84 on Friday.
Acacia Research Corporation, which led the bid, has been backed by Starboard since 2019. Starboard helped Acacia raise a “significant” amount of equity to fund its offer, one of the people familiar with the discussion said. Acacia also received a letter of trust from a bank, who said the bank believes it can help collect some of the debt needed for the transaction. Acacia is also in talks with a real estate company that will sell off a portion of Kohl’s property to help finance the bid, the person said.
Everyone who spoke on the matter asked to remain anonymous because the request was confidential. A spokesperson for Kohl’s did not immediately respond to a request for comment.
How is the supply chain crisis unfolding?
The pandemic has sparked the problem. Complex and interconnected global supply chains are in flux. Much of the crisis can stemming from the outbreak of Covid-19, causing an economic downturn, mass layoffs, and production shutdowns. Here’s what happened next:
Even with funding uncertain, the offer could put pressure on Kohl’s as Macellum has threatened to nominate a director to Kohl’s board “if the situation persists.” Macellum criticized Kohl’s in his letter for “mismanaging the business and failing to make the necessary operational, financial and strategic improvements.” That’s pressure from Kohl’s to consider fixing its e-commerce business.
Macellum attack an agreement with the retailer last April including the addition of three new directors to its board. Kohl’s stock has fallen more than 20% since then, due to supply chain challenges has growled the industry.
“We have continued to work with Macellum since the settlement and are disappointed with the path they have taken and the baseless speculations in their announcement and letter,” Kohl’s told Macellum.
Kohl’s has Discuss that their ongoing and online clothing investment efforts are well underway – and gaining traction. In November, it reported that its third-quarter sales increased 16%. In December 2020, it announced cooperation with Sephora to help attract more shoppers to its stores. Its active clothing business, which is working to make more items for all sizes, now accounts for more than a quarter of its sales.
https://www.nytimes.com/2022/01/22/business/dealbook/kohls-sale-starboard-value.html Kohl’s Received a $9 Billion Incentive Backed by Active Investor