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Kohl’s Strong Target For Takeover

T

he stock price of Kohl’s Corp. is up 56 cents today, as rumors grow that the retailer could be taken over by a private equity firm in 2013.

Kohl’s price has been dropping since January after the retailer cut profit forecasts foliowing extensive discounting and the same winter sales slump that struck many low and mid-range retailers, according to Bloomberg.

Bloomberg contended that the firm is a target for a takeover because it’s stock is trading at only 0.58 times its sales and at a cheaper multiple to profit than any other department store chain in North America.

Like many legacy brands, Kohl’s has extensive real estate holdings that may make it attractive to investors, including stores that have been equipped with solar panels. They also have exclusive deals with designers such as Vera Wang and Jennifer Lopez that attract repeat customers, according to analysts at Edward Jones & Co., Morningstar Inc., Aston Hill Financial Inc., and Arnold Investment Counsel, as reported in Bloomberg.

“It’s a good, sound retailer,” Brian Yarbrough of Edward Jones told Bloomberg. “There’s been more talk of it being a private equity play because it’s cheap and it’s not like the model’s broken or it’s a bad business. The earnings power is there.”

Private equity firms are flush with cash for buyouts such as this one, with over $360 billion in unspent dedicated capital. That money is aimed at attractive and profitable businesses that are considered undervalued.

A takeover might have wide ranging strategic implications for Kohl’s, as a private equity firm might try to capture value by liquidating real estate and closing unprofitable stores. Kohl’s stock was downgraded to Underperform on $4.49 billion in revenue for the quarter and earnings of 91 cents per share.