Kohl investors, don’t leave your money on the table

Department store chain

Kohl’s Corp.

KSS 32.23%

was heard from active investors recently. Now some are putting their money where their mouth is.

On Friday, a group of investors backed by Starboard Value offer 9 billion dollars, or $64 a share in cash, to buy Kohl’s, the Wall Street Journal reports. Sycamore Partners and Oak Street Real Estate Capital are also said to be potential partners. Starboard Value deals are 37% above Kohl’s closing price before news of the offer hit but only 26% above their average price over the past decade. Kohl’s on Monday confirmed that it has received a letter expressing interest.

The market does not assume a trade is made: Kohl’s stock spiked on Monday, though not enough to match Starboard Value-based bids. And that may not be the full price — the targets’ shares often trade at a discount even when the parties have agreed.

Kohl’s should probably do a competitive process, as the Starboard Value offer isn’t too generous. It puts Kohl’s business value at 3.9 times earnings after 12 months before interest, taxes, amortization and amortization, which would be a low offer compared to the six times Michaels Cos fetched. . in a private conversation last March, according to a report from Cowen. In other words, the Starboard Value offer gives Kohl’s an enterprise value of about 0.7 times its previous revenue, right around its 10-year average. At least nine of 11 analysts polled by FactSet had price targets above $64 per share of Kohl before news of the Starboard Value-based bids hit.

A sale — at the right price — probably makes more sense than any other proposition activist investors make, including a sell-leaseback and an e-commerce ad. Both of these appear to be designed to extract short-term value and can cause remaining shareholders to stay with a company. peace of mind with more leverage (in the case of sale – leaseback) or just a short-term stock rally (in the case of e-commerce).

Macy’s

shares rallied after an activist investor suggested an e-commerce spinoff in October, with another impulse when it said the following month that it had hired a consulting firm to review the merits of the proposal. It has returned to earth.

While activists try to point out the flaws in Kohl’s operations, the department store chain is perhaps the most promising of the many struggling companies, with cash flows. healthy freedom. At last year’s levels, it would take Kohl’s less than five years to buy back its equity — a much shorter time frame than the eight and 15 years it would take Macy’s and Nordstrom, respectively. Kohl’s also boasts the best operating margins of the three.

CEO Michelle Gass is one of the more innovative leaders in another currency industry, adds

Amazon

returned to its stores and reached a deal in 2020 to shop in stores with the popular cosmetics chain Sephora. Kohl’s current relationship with Amazon.com puts it in a positive light if Amazon, which is starting to experiment with brick-and-mortar clothing stores, looks to partner on future trials.

Whether Kohl’s can get a better bid remains to be seen. In the past, active investors have suggested that their real estate could be worth $7 billion or more; Analysts have pegged that value to just $3 billion to $5 billion. In a research report, UBS noted that it doubted Kohl’s real estate was of sufficient value as suitable collateral for the Starboard Value corporation to secure sufficient financing.

For existing investors in Kohl’s, the takeovers should serve as a reminder that the department store chain is still a chain worth continuing. Speculators, saving for active investors who may be thinking of cashing out soon, should probably wait on the sidelines.

Write letter for Jinjoo Lee at jinjoo.lee@wsj.com

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https://www.wsj.com/articles/kohls-investors-dont-leave-money-on-the-table-11643047964?mod=rss_markets_main Kohl investors, don’t leave your money on the table

Ian Walker

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