Kohl’s considers buyout offers; opposes activist board nominees

Kohl’s Corp. is not opposed to finding the right buyer, but doesn’t want an activist investor group to gain control of its board of directors.

The department store retailer is publicly acknowledging it has received multiple non-binding buyout proposals. The proposals are preliminary expressions of interest and do not yet have committed financing behind them.

Kohl’s, which in February 2022 adopted a “poison pill” shareholder rights plan to avert a hostile takeover of its business after receiving takeover offers it felt undervalued the business, has authorized Goldman Sachs to assist with further due diligence on select bids.

The poison pill plan, scheduled to expire in February 2023, will become exercisable if any stockholder acquires 10% beneficial ownership, or 20% in the case of passive institutional investors. In January 2022, Acacia Research Corp., backed by activist investment firm Starboard Value, offered to pay $64 a share for Kohl’s, valuing it at about $9 billion.

Private equity firm Sycamore Partners and Canadian department store retailer Hudson’s Bay Co. are also reportedly planning to make an offer. Recently, Kohl’s has been undertaking a turnaround that includes in-store Sephora shops, brand partnership, and a focus on athleisure merchandise. Its plans, however, have come under fire from activist hedge fund Macellum Advisors, which has a roughly 5% stake in Kohl’s.

Kohl’s has mixed Q4, optimistic for growth
In the fourth quarter of fiscal 2021, Kohl’s posted net income of $299 million, or $2.20 per share, down from net income of $342 million, or $2.20 per share, in the year-ago period. Analysts had expected earnings per share of $2.10. For the full year, Kohl’s reported record adjusted earnings per share of $7.33, exceeding the previous record of $5.60 in 2018.

Fourth-quarter revenue rose 5.8% to $6.50 billion from $6.14 billion last year, missing estimates of $6.60 billion. Digital sales accounted for 39% of net sales and were up 21% compared to the fourth quarter of 2019 but down 1% year over year. For the year, revenues rose 21.8% $19.43 billion, from $15.96 billion in 2020.

For the full fiscal year 2022, Kohl's is guiding for a sales increase of 2% to 3%, and EPS in the range of $7.00 to $7.50, excluding non-recurring charges. Analysts had forecast revenue of $19.11 billion, implying about 1.7% growth and EPS of $6.56.

Kohl’s seeks to maintain board control
Macellum Advisors is also looking to take control of the Kohl’s board. The group previously nominated a slate of 10 candidates (listed at the end of the article) for election to the board at Kohl’s 2022 shareholders meeting. 

In response, the Kohl’s board issued a letter to shareholders citing “substantial progress” in transforming the business, including total shareholder returns of 146% between October 2020 and January 2022. Calling the Macellum nominees “less qualified,” Kohl’s put forth its own slate of 13 nominees (both slates are listed at the end of the article).

Macellum has criticized Kohl’s in recent years for not performing as well as it could. In January, it called for the company to consider options, including selling itself. Last year, it pushed Kohl’s to expand its board with the addition of three new members. In a settlement agreement with Macellum and certain other shareholders, the retailer appointed two of Macellum’s designees, along with an additional mutually agreed upon designee, to its board. 

Macellum’s list of board nominees includes the following:

• Jonathan Duskin, CEO of Macellum Capital Management;

• George Brokaw, former managing director (mergers & acquisitions) at Lazard Frères & Co.;

• Francis Duane, former executive vice chairman at Calvin Klein parent PVH Corp.;

• Pamela Edwards, CFO of value retailer Citi Trends; Stacy Hawkins, a vice dean at Rutgers Law School;

• Jeffrey Kantor, a former senior executive at Macy’s, including former chairman of macys.com;

• Perry Mandarino, co-head of investment banking and head of restructuring at B. Riley Securities;

• Cynthia Murray, former president of the Chico’s brand;

• Kenneth Seipel, former president and CEO of Wet Seal and former VP of stores, operations and store design at Old Navy; and

• Craig Young, who has experience in real estate private equity.