Kohl’s is off the sales block following the end of talks with Franchise Group (FRG), which has been the highest bidder for the company since the retailer began seeking a buyer in January 2022. When exclusive acquisition negotiations began in early June, FRG proposed $60 per share for Kohl’s, a valuation of $8 billion, eventually revising the proposal to $53 per share (but without definitive financing arrangements).
Now, citing economic challenges stemming from a number of factors, including inflation, which have increased uncertainty in both the finance and retail industries, Kohl’s revealed that negotiations had stalled after the two parties could not reach an agreement. Kohl’s shares fell more than 20% following news of the end of negotiations as it traded under $30.
A similar scenario played out in late June 2022 as Walgreens Boots Alliance (WBA) decided to hold off on selling its Boots and No7 Beauty Company UK-based businesses. WBA noted it would change course due to market challenges that had erupted since it began searching for buyers in January 2022.
Kohl’s had previously rejected a $64 per share offer from Starboard Value and Acacia Research in January 2022, believing this figure undervalued the company. Economic hurdles over the last few months led Kohl’s to consider lower bids and for prospective purchasers to offer less following a downturn in the market.
“Throughout this process, the board has been committed to a deep and comprehensive review of strategic alternatives with the goal of selecting the path that maximizes value for shareholders,” said Peter Boneparth, Chair of the Kohl’s board in a statement. “After engaging with more than 25 parties in an exhaustive process, FRG emerged as the top bidder and we entered into exclusive negotiations and facilitated further due diligence. Despite a concerted effort on both sides, the current financing and retail environment created significant obstacles to reaching an acceptable and fully executable agreement. Given the environment and market volatility, the board determined that it simply was not prudent to continue pursuing a deal.
“Kohl’s is a financially strong company that generates substantial free cash flow and has a clear plan to enhance its competitive position and improve performance over the long term,” Boneparth added. “Highlighting the board’s confidence in the company’s strategic plan, the board reaffirms its commitment to an accelerated share repurchase program following the company’s Q2 earnings results announcement.”
In addition to ending the FRG talks, Kohl’s has revised its Q2 outlook downward. The retailer had expected sales to decrease in the low single digits compared to 2021 but has revised its expectations to be down in high single digits in Q2. Earnings for Q2 will be released Aug. 18.
Activist investors, citing the need for leadership changes due to the retailer’s perceived underperformance, had urged Kohl’s to name new directors to its board, with Marcellum Advisors nominating 10 directors including its CEO Jonathan Duskin. However, in a May 11 vote, the retailer re-elected all 13 of its current board directors.