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February 7, 2022

Kohl’s Rejection Sets Up Fight with Activist Investor

Posted In: Retail Articles

Kohl’s Corp. has rejected the advice of activist investors and buy-out offers, adopted a poison pill and squared off against the firm leading the effort to reconstitute the company, Macellum Advisors.

The Kohl’s board of directors has issued a statement declaring that it reviewed offers of interest in the company and, after reviews by its independent financial advisors and its own finance committee, determined that, “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.”

For its part, Jonathan Duskin, Macellum’s managing partner, responded that the investment firm was “disappointed and shocked by Kohl’s hasty rejection of confirmed indications of interest.”

Moreover, Macellum promised to go forward with plans to list its own slate of board nominations for the Kohl’s board elections.

In rejecting the offers, which, according to published reports came from Sycamore Partners and Acacia Research Kohl’s stated that its board is committed to maximizing the long-term value of the company and will review and pursue opportunities it believes would credibly lead to a value consistent with its performance and future opportunities. The Kohl’s board has tasked its finance committee with leading a review of any expressions of interest. The finance committee, formed pursuant to the 2021 settlement agreement with Macellum and other shareholders, is composed of independent directors exclusively, the retailer added. In addition, the company and board have engaged financial advisors, including Goldman Sachs and PJT Partners, and have asked Goldman Sachs to engage with interested parties.

As part of its actions, Kohl’s has announced that it has adopted a limited-duration shareholder rights plan, already effective and scheduled to expire on February 2, 2023, saying that it had done so to ensure that the board could review expressions of interest effectively including any from parties already making offers for the company. 

“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 announcing the rejection of the initial bids for the company. “The board is committed to acting in the best interest of shareholders and will continue to closely evaluate any opportunities to create value.”

Macellum Advisors is a long-term holder of almost 5% of Kohl’s outstanding common shares, characterized the Kohl’s two-tiered shareholder rights plan as particularly punitive to any investor seeking more active engagement with the board.

Duskin asserted that the bid rejection, coming just two weeks after potential acquirers first contacted the company, “only validates for us that a majority of the board is entrenched and lacks objectivity when it comes to evaluating value-maximizing sale opportunities relative to management’s historically ineffective standalone plans. We doubt that interested parties were given adequate consideration or access to management, data rooms and the type of information required to inform upward adjustments to bids. Moreover, it appears that the board has not authorized its bankers to canvass the market and initiate substantive conversations with other logical suiters. Even if some of our fellow shareholders want the board to compare sale opportunities to management’s go-forward strategy, we fear the company’s actions and statements demonstrate a lack of impartiality and strategic thinking in the boardroom.”

Duskin went on to say:

“We will do everything in our power to prevent the current board from continuing to chill a normal-course sales process. In our view, the board’s cumbersome Friday morning press release and adoption of a poison pill that has a lower trigger for investors that may seek more active engagement with the company demonstrate shareholders’ interests are not the top priority in the boardroom. It seems to us that the board is taking unprecedented steps to derail a credible process and kill interest among the growing crop of possible buyers of Kohl’s. Fortunately, the slate we plan to nominate in the coming days will be far more aligned, experienced and open minded when it comes to pursuing all paths to maximizing value.”

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