Analysts speculate that Kohl’s could be takeover target

The common stock shares for Kohl’s Corp. rose 56 cents Thursday amid growing Wall Street speculation that the Menomonee Falls-based retailer could be a prime target to be acquired by a private equity firm in 2013.

Kohl’s fell in January to its lowest valuation relative to revenue in more than four years after the retailer cut its profit forecasts because of disappointing holiday sales and steeper-than-planned price reductions, according to a report by Bloomberg.

Kohl’s stock is trading at only 0.58 times its sales and at a cheaper multiple to profit than any other North American department-store chain, Bloomberg reported.

Stock analysts at Edward Jones & Co., Morningstar Inc., Aston Hill Financial Inc. and Delafield-based Arnold Investment Counsel each speculated with Bloomberg that Kohl’s could be prime for a takeover.

Kohl’s, with exclusive brands such as Jennifer Lopez and Vera Wang that help attract repeat customers, may be attractive to a company because of its extensive real estate holdings, including many stores that have been equipped with solar panels, the analysts said.

“It’s a good, sound retailer,” Brian Yarbrough, an analyst for Edward Jones in St. Louis, told Bloomberg. “There’s been more talk of it being a private equity play because it’s cheap and it’s not like the model’s broken or it’s a bad business. The earnings power is there.”

U.S. private equity funds have $360 billion of committed unspent capital dedicated to buyout funds in the global market, according to data from research firm Preqin Ltd.

Barry Arnold, a fund manager at Arnold Investment Counsel, which owns Kohl’s shares, said, “There’s plenty of cash sloshing around, so that’s not a big problem…It’s an attractive company.”

Kohl’s operates more than 1,100 stores across the United States and has annual sales of about $19 billion.
A spokeswoman for Kohl’s did not respond to a phone call or e-mail seeking comment on the Bloomberg report.

If Kohl’s is acquired by a private equity firm, it remains unclear whether that transaction would have an impact on the retailer’s decision to build its new headquarters in Menomonee Falls, rather than downtown Milwaukee.

Sheer speculation here, but I’ve got to believe that an independent, fresh set of eyes from the outside would second-guess that decision and would come to the conclusion that the company’s ability to recruit top talent in the future would be more enhanced with a downtown Milwaukee headquarters in the hub of it all, rather than an isolated campus in the suburbs.

Steve Jagler is executive editor of BizTimes Milwaukee.

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