According to two people familiar with the matter, a group of investors led by Starboard Value has made a $9 billion offer to take the company private.
The interest that activist investors are showing in department stores is a sign that brick-and- mortar retailers are having difficulty with supply chain issues and increasing competition from online sites. Retailers have been under pressure for several years, while online sites have been soaring.
It is under pressure to improve its share price. Macellum Advisors, which has a 5 percent stake in the retailer, urged it to explore strategic alternatives, including a sale, in a letter last Tuesday. It raised similar criticisms over last year.
Macellum sent a letter and the consortium made an offer, which may be the beginning of a dance to put pressure on the company to consider a sale. In response to Macellum, the company said it was confident in its board and would pursue the best interests of all shareholders.
A department store with a focus on casual wear, home wares and sporting goods is located in Menomonee Falls, Wis. Unlike other retailers, Kohl's stores are often found in smaller shopping centers. It has made its real estate more valuable as malls have fallen on hard times.
The Starboard consortium will need to secure funds to finance the bid, given the challenges posed by past leveraged buyouts of retailers. The deals saddled the retailers with debt, leaving them unable to make the necessary investments as e-commerce transformed the retail landscape. Three people were unable to make their loan payments and filed for bankruptcy. Both Payless and Neiman Marcus emerged from bankruptcy.
The market value of the company is around $6.5 billion, and it has risen less than 4% over the past year. The Wall Street Journal reported that the offer was 37 percent higher than the closing price of $46.84 on Friday.
Starboard has supported the bid since 2019. One of the people familiar with the discussions said that Starboard helped raise a significant amount of equity capital to fund the offer. A letter of confidence from a bank has also been received by Acacia, this person said, stating that the bank believes it can help assemble part of the debt necessary for the transaction. A person with knowledge of the situation said that a real estate firm was in talks about selling part of the real estate to help fund the bid.
The offer is confidential so both people requested anonymity. A spokeswoman for the store did not respond to the request for comment.
Macellum has threatened to nominate directors to the board if the status quo persists, so the offer could put pressure on the board. Macellum criticized the business for mismanagement and failing to implement necessary operational, financial and strategic improvements. It is trying to get Kohl's to rethink its business model.
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The problem was caused by the Pandemic. The global supply chain is in turmoil. The outbreak of Covid-19 caused an economic downturn, mass layoffs and a halt to production. Here is what happened next.
A decrease in shipping. With fewer goods being made and fewer people with paychecks to spend at the start of the Pandemic, manufacturers and shipping companies assumed demand would drop sharply. Demand for some items would surge as a result of that mistake.
There was a spike in demand for protective gear. In early 2020 the planet needed surgical masks and gowns. Most of the goods were made in China. Cargo vessels began delivering gear around the globe as Chinese factories began ramping up production.
There was a shipping container shortage. The containers were emptied in many parts of the world. China, where factories would begin pumping out goods in record volumes, needed more containers than any other country.
There was increased demand for durable goods. Spending shifted from eating out to online purchases as a result of the Pandemic.
Strained supply chains. Factory goods overwhelmed the U.S. ports. The cost of shipping a container from Shanghai to Los Angeles went up tenfold because of swelling orders.
Macellum added three new directors to its board as part of a settlement with the retailer. Supply chain challenges have snarled the industry, and shares in Kohl's have fallen more than 20 percent.
After the settlement, we have continued to engage with Macellum and are disappointed with the path they have taken and the speculation in their announcement and letter.
According to the company, its efforts to invest in its online and active wear business are getting traction. Its third-quarter sales increased by 16 percent. In December 2020, it announced a partnership with a makeup store. Its active wear business now makes up a quarter of its sales.
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