A sale is no longer being considered for Kohl’s immediate future after the Menomonee Falls-based retailer announced Friday that its months-long strategic review of potential suitors has come to an end.
The news follows three weeks of exclusive negotiations with one bidder, Delaware, Ohio-based Franchise Group Inc., a holding company of several retail brands including The Vitamin Shoppe and Pet Supplies Plus. The company ultimately went away empty handed after its $53 per share purchase offer – reduced from originally $60 per share – was turned down by Kohl’s board of directors. Kohl’s said Franchise Group submitted its revised offer without “definitive financing arrangements to consummate a transaction.”
“Despite a concerted effort on both sides, the current financing and retail environment created significant obstacles to reaching an acceptable and fully executable agreement,” said Kohl’s board chair Peter Boneparth in a statement. “Given the environment and market volatility, the board determined that it simply was not prudent to continue pursuing a deal.”
He added that the board “remains open to all opportunities to maximize value for shareholders,” a message Kohl’s has hammered home throughout the sales review process but one that’s been questioned by activist investors and analysts.
One of those opportunities could include monetizing portions of its real estate portfolio, Kohl’s said in a news release. The company has 1,162 department store locations across the U.S. and owns 400 of those properties, according to SEC filings. It’s been estimated that the company’s real estate is worth $7 billion to $8 billion.
In a news release Friday, Kohl’s pointed to the impact of consumer-side inflationary pressure on sales, which are now expected to be down high-single digits for the second quarter as compared to previously projected low-single digits decrease. Kohl’s said it is “taking actions to navigate this environment” and plans to share additional details when it releases Q2 earnings on August 18.
Kohl’s launched its strategic review process early this year, retaining investment banking firm Goldman Sachs to engage with potential suitors. Since January, the company engaged with an upwards 25 bidders. Kohl’s on Friday provided an overview on how the process played out:
“Select bidders were invited to a data room containing over 550,000 pages across more than 55,000 documents, and engaged in dozens of meetings with management and functional leaders. More than 20 NDAs were signed with potential bidders and financing partners as part of the process.
“After receiving unfinanced proposals to acquire the Company with denominated value from five parties, the Finance Committee, management, and Goldman Sachs engaged with four of the parties, and ultimately engaged exclusively with (Franchise Group), whose $60 proposal significantly exceeded the other then available bid.”
In a statement Friday, Franchise Group acknowledged the “time and attention” from Kohl’s management and advisors during the negotiations process and the “trust and support” from its financing partners regarding the potential transaction.
Kohl’s board embarked on the strategic review process while it fought for boardroom control earlier this year against investor Macellum Capital Management. In May, Kohl’s shareholders re-elected all 13 of its incumbent board directors over Macellum’s 10 candidates, which had campaigned to improve stock performance or pursue a full sale of the company.
Now, with both the proxy war and the bidding process behind it, Kohl’s leadership can turn its full attention back to its current turnaround strategy, one it has repeatedly touted as key to improve performance over the long term. The strategy includes plans to open 100 smaller-format stores and grow its partnership with Sephora to $2 billion. It also authorized a $3 billion share repurchase program, with a $500 million accelerated share repurchase program to commence immediately following the Company’s Q2 earnings results.
Following Friday’s no-deal announcement, Kohl’s stock opened at $29.12, plummeting from $35.71 at the close on Thursday.
See below for video of CNBC interview today with Boneparth and Kohl’s CEO Michelle Gass.
