Kohl’s is exclusively in talks with Franchise Group to hammer out a deal offering $60 per share for the department store retailer, it announced Monday.
That figure values the Menomonee Falls, Wisc. retailer around $7.74 billion, far lower than the $69 per share, or $9 billion, the “owner and operator of franchised and franchisable businesses” originally offered in April. But a lot has happened in the past two months, namely disastrous first-quarter earnings that lent some credibility to activist investor Macellum’s accusation that Kohl’s intentionally held its board vote last month before revealing the sales miss. (Macellum ultimately failed in its bid to control Kohl’s board.)
Franchise Group’s diversified six-banner portfolio includes a trio of home furnishings companies in American Freight, Badcock Furniture and Buddy’s Home Furnishings. Its umbrella also includes Sylvan Learning, the educational chain, as well as The Vitamin Shoppe, and Pet Supplies Plus.
In last month’s first-quarter earnings call, Franchise Group CEO Brian Kahn declined to comment on the company’s interest in Kohl’s but broadly spoke to the firm’s “philosophy when it comes to M&A.”
“We’re not going to mortgage the farm to do any one transaction,” he said, adding, “Any transaction of size, certainly, would need to be significantly accretive to [our] earnings per share and cash flow per share.”
More than anything, Franchise Group looks for companies with top-notch corporate leadership. “Whether we do very small transactions or very large transactions, management is always going to be a key to what we’re looking for,” Kahn said.
Kohl’s, meanwhile, is at something of a crossroads after chief merchant Doug Howe resigned two weeks ago, leaving behind a retailer focused on growing athleisure and activewear when much of America is eager to dress up again, according to Walter Loeb, a former retail executive and ex-Morgan Stanley analyst. That means it really doesn’t have a fashion focus and won’t have a “real vision” until it names a new merchandising head.
What’s more, the retailer faces an uphill battle trying to turn itself around while navigating ongoing supply chain challenges, one retail source said.
Over the next three weeks of its exclusivity agreement, Franchise Group will wrap up due diligence, put together the financing needed to seal the deal and take care of any legal legwork. There’s no guarantee that each company’s board will sign off on a sale if any final agreement is reached, Kohl’s said.