The Kohl’s Corp. board has rejected takeover bids from last month, determining that they undervalued the company.
In addition, Kohl’s has set up a poison pill, called a limited-duration shareholder rights plan, which is effective immediately and is scheduled to expire on Feb. 2, 2023.
The Menomonee Falls, Wisc., value department store chain issued a statement Friday morning, indicating that the board has determined, following a review with its independent financial advisers and upon the recommendation of its finance committee, that “the valuations indicated in the current expressions of interest which it has received do not adequately reflect the company’s value in light of its future growth and cash-flow generation.”
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Kohl’s also said the board is “committed to maximizing the long-term value of the company and will review and pursue opportunities that it believes would credibly lead to value consistent with its performance and future opportunities.”
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Last month Acacia Research Corp., which is controlled by activist hedge fund Starboard Value LP, offered to acquire 100 percent of the outstanding shares of Kohl’s for $64 a share in cash, which values the company at $9 billion. Acacia confirmed the offer in a Securities and Exchange Commission filing.
It is also believed that Sycamore Partners, a private equity firm that has Belk, Loft, Express, Hot Topic, Ann Taylor and other retailers in its portfolio, also bid for Kohl’s, possibly in the $64 to $65 range.
It is expected that higher bids could surface.
Kohl’s said its board has designated its finance committee to lead “the ongoing review of any expressions of interest.” The finance committee, which was formed pursuant to the 2021 settlement agreement with Macellum Advisors GP LLC and other shareholders, is comprised exclusively of independent directors.
Kohl’s has also engaged financial advisers, including Goldman Sachs and PJT Partners, and has asked Goldman Sachs to engage with interested parties.
“We have a high degree of confidence in Kohl’s transformational strategy, and we expect that its continued execution will result in significant value creation,” said Kohl’s chairman Frank Sica, in a statement Friday. “The board is committed to acting in the best interest of shareholders and will continue to closely evaluate any opportunities to create value.”
On March 7, Kohl’s will stage an investors’ day when it will update shareholders on its strategic initiatives and capital allocation plans. There could be more information disclosed on bidders.
Kohl’s said its new shareholder rights plan “has been adopted in order to ensure that the board of directors can conduct an orderly review of expressions of interest, including potential further engagement with interested parties. The rights plan does not preclude the board from considering an offer that recognizes the value of the company.”
The dividend distribution of one right for each outstanding share of the company’s common stock is payable to shareholders of record on Feb. 14, 2022. The rights are exercisable only if a person or group acquires beneficial ownership, 10 percent (or 20 percent in the case of passive institutional investors) or more of the company’s outstanding common stock. The plan provides the holders of the rights the ability to purchase more shares of the company at a 50 percent discount.
Kohl’s also said the rights plan provides several “shareholder-friendly” features, including an ability for shareholders to call a special meeting for purposes of exempting a “qualifying offer.”
Last Tuesday, Cowen Equity Research issued a report raising some doubt on whether the bids that were on the table would trigger a deal, while indicating that “incoming investor feedback is split on whether a deal could be completed that is higher in price.”
Cowen also reported that a sale-leaseback of Kohl’s real estate, amounting to $2 billion to $3 billion, would be required to finance a deal, though the possibility of such a sale is uncertain.
“Our take is that based on Kohl’s trading price and various probabilities and prices, there could be a 20 to 30 percent chance, more or less, of a deal at $64 to $65 per share, and a 30 to 40 percent chance, more or less, of a deal getting done at $75 or higher,” Cowens indicated.
Kohl’s stock started trading at $59.16, up 58 cents or 1 percent, Friday morning on the NYSE. The stock has been on the rise since the takeover offers came in last month.
Kohl’s has been under pressure from shareholder activists, including Macellum Advisors and Engine Capital, to improve the company’s performance and consider strategic alternatives, including possibly selling the company, or reengineering it into separate dot.com and brick-and-mortar stores companies, similar to what the Hudson’s Bay Co. has already done with its Saks Fifth Avenue, Saks Off 5th and Hudson’s Bay divisions.