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Latest Kohl’s Board Attack: Chain Hasn’t Generated ‘Same-Store Sales Growth for a Decade’

The battle for Kohl’s board birthed a new skirmish Thursday.

Activist investor Macellum Advisors fired back at the retailer’s recent dismissal of buyout offers by nominating 10 board candidates for election at the department store company’s upcoming shareholders meeting.

In a letter to shareholders, Macellum Capital Management managing partner and CEO Jonathan Duskin said the board’s hasty rejection of two takeover bids “suggests it is no longer operating with impartiality and objectivity.”

“The fact that the board simultaneously adopted what appears to be an onerous, two-tiered poison pill indicates to us it is also no longer prioritizing shareholders’ interests,” Duskin wrote, referring to the shareholder rights plans that many companies adopt to prevent hostile takeovers. “In our view, any directors that support such patently anti-shareholder maneuvers cannot be trusted to credibly evaluate potentially value-maximizing alternatives versus management’s perpetually ineffective plans.”

Duskin believes Kohl’s might be pursuing a “sweetheart deal” that would benefit the existing board and executives instead of maximizing shareholder value.

He also reiterated claims about Kohl’s failure to generate on the financial front, accusing the company of “underperform[ing] both the S&P 500 and SPDR S&P Retail ETF over the one-year, three-year, five-year and ten-year periods.”

The activist last year led a group of investors that aired some ideas about maximizing shareholder value, namely urging the company to get creative with its real estate assets. The parties’ eventual settlement added Macellum-backed Margaret Jenkins and Thomas Kingsbury and Kohl’s-approved Christine Day, former CEO of Lululemon, to the board. The truce staved off a proxy fight at Kohl’s annual shareholders meeting last year.

But Macellum last month reactivated its push for a board shakeup at the Menomonee Falls, Wisc.-based retailer. Subsequent to that, Kohl’s late last month received acquisition offers. According to a regulatory filing with the Securities and Exchange Commission, one offer was from Acacia Research, backed by activist hedge fund Starboard Value, who is behind a consortium that offered $9 billion, or $64 a share in cash, to acquire the retailer. The other reportedly is from private equity firm Sycamore Partners at $65 a share. Kohl’s already faced an activist push in December from Engine Capital Management to separate e-commerce from the store operation, or put itself up for sale.

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Not seeing any improvement over the past year, Macellum stepped up its board attack.

“Given the growing list of issues and red flags in the boardroom, we believe substantial and urgent change is needed. Kohl’s is at a pivotal inflection point now that it has a window to source and consider potentially value-maximizing acquisition proposals—a window that will not be open indefinitely as the market environment and macro circumstances evolve,” Duskin wrote. “If elected, our nominees will bring fresh viewpoints and open minds to the Board. They will also bring a firm commitment to assessing all paths to maximizing value for shareholders. This means evaluating sale opportunities relative to a new strategic, operational and financial plan for pursuing market share growth and enhanced earnings.”

Duskin said he expects Kohl’s upcoming analyst day presentation to be “short on detailed specifics, but full of promises.” He reminded shareholders that the retailer “has not generated same-store sales growth for a decade.” And he took credit for trying to effect change last year: “Do not forget that the board, which now appears to be botching a sale process, summarily rejected our calls for these logical steps last year,” he wrote.

In addition to nominating himself to the board slate, the letter revealed the other nine nominees. They include George Brokaw, a former investment banker and current director at DISH Network, CTO Realty Growth Inc. and Alico Inc.; Pamela J. Edwards, CFO at specialty retailer Citi Trends Inc. and former executive at L Brands Inc. and Express Inc., as well as chair of the audit committee at the Neiman Marcus Group board.

The proposal also nominated attorney Stacy Hawkin, who is currently vice dean of Rutgers Law School; Jeffrey A. Kantor, former c-suite executive at Macy’s Inc. and current board member of Ronald McDonald House New York; Perry Mandarino, an investment banker at B. Riley Securities, who also has restructuring expertise and is on the board of Bebe Stores Inc.; Cynthia S. Murray, former president at Chico’s FAS and at Full Beauty Brands and former retail executive at Talbots and Saks Off Fifth, who was a board member at Francesca’s collections and is currently founder and CEO at leadership consultancy firm Stanmore Partners.

Rounding out the nominees are Kenneth D. Seipel, former CEO of value department store Gabriel Brothers Inc., former president and chief operating officer of fast fashion chain Wet Seal Inc. and former executive vice president of stores, operations and store design at Old Navy, as well as current board member at Citi Trends, and Craig M. Young, founder and managing principal of real estate private equity firm Tidewater Capital and president of venture investing firm Chain of Lakes Capital Inc.

The retailer took issue with Macellum’s missive.

“Kohl’s believes Macellum’s effort to take control of the Board is unjustified and counterproductive,” the retailer said on Thursday in response to Macellum’s shareholder letter.

It further said that based on 2021 performance, “we are positioned to exceed our key 2023 financial goals two years ahead of plan. Our work to fundamentally restructure the business allowed us to achieve a nine-year high operating margin in Q3, and record Q3 earnings per share, positioning us to achieve significantly enhanced profitability going forward.”

The retailer added that the results reflect its “strategic focus on transforming the operating model and making Kohl’s the leading omni-channel destination for the active and casual lifestyle,” citing its Sephora partnership.

Kohl’s also rejected the activist investor’s claims that its board is not equipped to evaluate sale opportunities, noting that the Finance Committee will lead a review of any expressions of interest and that the company has engaged financial advisors, Goldman Sachs and PJT Partners.

The retailer questioned Macellum’s disappointment with its rejection of offers on the table, noting that the activist “on multiple occasions stated publicly that Kohl’s is worth ‘at least $100 per share.'” The poison pill, it added, was adopted to allow the board to thoroughly review options by “preventing any person or group from gaining control of Kohl’s through open market accumulation.” Moreover, Kohl’s noted that “Macellum itself publicly acknowledged on February 4th that the shareholder rights plan Kohl’s adopted is ‘still a stop, look and listen mechanism.'”