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Expert Sides with Activist Investor in Kohl’s Board Battle

Kohl’s might have a tougher road ahead in its board battle after a top independent proxy advisor gave the department store retailer just a partial victory in a report issued Friday.

Institutional Shareholder Services (ISS) said it approved of two board candidates that Macellum Advisors nominated but rejected the activist investor’s calls for a full board overhaul.

ISS believes Jeffrey Kantor, a former leader at Macy’s, and one-time L Brands executive Pamela Edwards could bring significant retail experience to the Kohl’s board, noting that Macellum raised some “valid” concerns.

ISS’s report on the protracted proxy fight comes after institutional investor T. Rowe Price last week said it plans to back Kohl’s board nominees over Macellum’s when shareholders vote at the annual meeting on May 11. Fellow advisory Glass, Lewis & Co. has yet to weigh in.

Macellum CEO Jonathan Duskin believes current board leadership is at risk of “retreat[ing] to their uninspiring three-year strategy” without new blood joining the current slate.

“We firmly believe the best path to preserving and maximizing shareholder value is electing an experienced, objective slate that has a superior strategy for completing a credible strategic review and weighing sale options against a focused operating plan,” he said.

Duskin in February blamed Kohl’s leadership for failing to grow same-store sales in a decade. He urged shareholders on Friday to “install change agents in the boardroom” to drive value and disrupt the “status quo.”

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Kohl’s countered by pointing to its “strong balance sheet” and “steady margins” while some rivals went bankrupt or liquidated. “These operating results do not paint a picture of a broken company that requires sweeping changes at the top to execute a turnaround,” it said.

The Menomonee Falls, Wisc.-based retailer noted that ISS didn’t support Duskin’s election to the board, noting that the move seems orchestrated to control the chain’s real estate assets estimated to be worth $ 7 billion. Hudson’s Bay Co. has expressed its interest in bidding for Kohl’s partly with a view to the company’s physical footprint.

Incoming board chairman Peter Boneparth has been on the Kohl’s board since 2008 and is standing for re-election. The former Jones Apparel Group chief executive urged shareholders to support Kohl’s board nominees. “As a current board member and your incoming independent chair, I believe it’s crucial that you understand the effort your board has put into overseeing Kohl’s strategy, as well as the concrete risks presented by Macellum’s inexperienced slate of directors,” wrote Boneparth, an investment banker who took apparel firm Norton McNaughton public in 1994 and later was a senior advisor in Blackstone Group’s retail division.

“We are recently refreshed, adding six independent directors in the last three years, including three who joined the board last year as part of the settlement with Macellum and other investors,” Boneparth said, adding that Kohl’s “is taking the right steps to maximize value for all shareholders.” “We are also continuing to deliver on the strategy we unveiled in October 2020, which helped us achieve record EPS last year and allowed us to double our annual dividend to $2 per share for 2022.”

Boneparth went on to say that Kohl’s leadership has given some bidders access to 55,000-plus documents and is weighing its current plan against alternatives with an eye toward the “path that maximizes shareholder value.”

Boneparth called out problems with Macellum’s nominees, pointing out that six of 10 have never served on a public company board and that “none [has] served on a retail company board of comparable size to Kohl’s.” Several are directly associated with bankruptcies and “only one” has experience in the “critical” areas of technology, e-commerce or digital.

Boneparth also said Macellum’s nominees pose a “threat” to Kohl’s partly because of Duskin’s relationship that threaten his “true independence,” citing Edwards, a Neiman board member and former chief financial officer at Citi Trends when the investor led a campaign to shake up the urban fashion retailer’s board.