Kohl’s continues to defend current board amid activist investor proxy fight

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In an ongoing proxy fight, Menomonee Falls-based Kohl’s Corp. continues to defend its board against activist investors’ campaign to replace five of the company’s 12 directors.

In a letter to shareholders Wednesday, Kohl’s argued its board is better equipped than the activists’ nominees to lead the company through retail industry disruption. Citing a 200% increase in stock price since October — which it ties to progress under a new long-term growth initiative — among other milestones, Kohl’s urged shareholders to keep the status quo.

“Simply put, Kohl’s board, working closely with management, has acted decisively to put the company on a new trajectory to enhance value for shareholders,” the letter reads.

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Kohl’s in early March reinstated its quarterly dividend and share repurchase program, both of which had been temporarily suspended at the outset of the COVID-19 pandemic.

The activist investor group, which collectively owns 9.5% of the retailer’s outstanding stock, has launched criticism after criticism at the retailer, blaming its board for underperforming stock, stagnant sales and lost market share — operating issues that arose well before the COVID-19 pandemic, which brought sales down 20% last year, and 10% for the fourth quarter.

The group has approached shareholders with its own plea: vote for its slate of nominees to replace the five “least qualified” incumbent board directors, which it says include two Milwaukee-based execs: John Schlifske, chairman, president and CEO of Northwestern Mutual, and Jonas Prising, chairman and CEO of ManpowerGroup.

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“Our desire is to build long-term value and we have carefully selected directors who we believe are far better positioned to turn around Kohl’s than the company’s five stale directors with irrelevant skill sets who have overseen significant underperformance at Kohl’s,” the group said in a recent letter to shareholders.

Kohl’s latest letter to shareholders includes brief statements by each of the 12 board directors, pitching the future of Kohl’s under the current leadership.

Here’s what Schlifske had to say: “The Kohl’s board and management team have been actively transforming and repositioning the business so that we can pursue new opportunities and accelerate revenues and profitability. As a result of this ongoing investment and renewal, we are now poised to significantly increase shareholder value and continue our long track record of returning capital to shareholders through dividends and buybacks.”

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And Prising: “The board’s compensation philosophy is specifically designed to incentivize and motivate our management team to deliver on key business and financial objectives and increase value for all shareholders. Failure to achieve targeted goals has significant consequences, while success is rewarded. For example, in fiscal 2019 our CEO and senior leadership team did not receive any performance-based annual incentives and no merit increases were awarded in March 2020. Our shareholders have consistently shown strong support for our executive compensation, including support from nearly 92% of the votes cast in favor of our executive compensation last year.”

Activist investors argue the five incumbent board members lack specific apparel retail expertise, which is true, but Kohl’s says all 12 directors have experience with broader retail or consumer-facing industries. Plus, four directors are current or former retail CEOs, including Kohl’s CEO Michelle Gass.

Kohl’s argues that four of five of the activist investors’ board nominees have “no meaningful” digital experience, an area that generated 40% of total sales last year.

The activist investors’ five nominees include Jonathan Duskin, principal of Macellum Advisors GP LLC; Margaret Jenkins, a former chief marketing officer at Denny’s Inc.; Jeffrey Kantor, former chairman at Macy’s Inc.; Cynthia Murray, former president at Chico’s; and Thomas Kingsbury, former CEO of Burlington Stores.

If all five are elected, they would represent a minority of the entire board, which means that the group’s proposed plans may not be implemented. Nevertheless, it would be an “important step in the right direction,” the activist investors group said.

Shareholders will vote at Kohl’s 2021 annual meeting, set to take place virtually on May 12.

As Kohl’s tries to keep its board in tact, it also is taking steps to financially recover from a tumultuous year. Earlier this week, the company announced a cash tender offer for up to $1 billion combined aggregate principal amount for certain notes.

“Last year, Kohl’s borrowed $600 million at 9.5% interest, which is very high. By tendering $1 billion in debt and offering $400 million in lower-interest debt, Kohl’s can get rid of its most expensive debt and cut its maturities over the next five years by more than half. Also, Kohl’s could potentially improve its credit ratings,” said David Swartz, an analyst at Morningstar Research LLC. 

Swartz said the tender makes Kohl’s a stronger contender in its fight with activist investors because it shows that management has cut debt expenses long-term.

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