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No Longer Seeking a Sale and a Savior, Kohl’s Turns to Self-Care

Kohl’s is back to focusing on me, myself and I after takeover talks with Vitamin Shoppe’s owner fell apart and the retailer’s board wound up a months-long strategic review Friday.

Perhaps more than anything, bad timing tripped up the Kohl’s sale process as data and economists increasingly suggest the U.S. could be headed for a recession.

Investors sent Kohl’s shares tumbling 19 percent to the $29-a-share range on the news that the company failed to find a buyer.

Kohl’s chairman Pete Boneparth blamed the “current financing and retail environment” for Franchise Group’s most recent proposal valuing the retailer for less than it wanted.

Franchise Group in recent weeks had reportedly looked to get a deal closer to $50-per-share versus its original $60-per-share bid for a $7.74 billion deal. Prior to Friday, Kohl’s shares had been trading in the $35 range.

Kohl’s on Friday said it ultimately rejected Franchise Group’s revised $53-a-share, $6.84 billion offer. And despite three weeks of exclusive talks and partial financing reportedly lined up with Apollo, the revised proposal came in lacking firm financing. That made Kohl’s skittish about any such deal making it into the end zone.

On top of that, Franchise Group was hoping it could include Kohl’s real estate leasebacks as part of the final arrangement and use that strategy to pay for much of its proposed takeover.

A deteriorating economy and Fed rate hikes also gummed up the process. Recent rate hikes raised borrowing costs and threatened the real estate market. Kohl’s own first-quarter sales slumped along with key misses at Walmart and Target, which were caught flat-footed as shoppers buying habits evolved.

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The signs for the road ahead aren’t exactly promising for retail.

Retailers faced with bloated inventories started marking down product in the second quarter and are likely to continue promoting overstocked merchandise to clear through the excess. The risk of a recession in the months ahead seems to be growing stronger by the day, according to The Conference Board.

Even Kohl’s is seeing a “softening in consumer spending” and it now expects sales to be down in the high-single digits in the second quarter, versus prior estimates of a decline in the low-single digits. It’s “taking actions to navigate this environment” and will share more when it reports second-quarter earnings on Aug. 18, it added.

The Menomonee Falls, Wisc.-based department store retailer first received takeover interest in January from activist investors looking to mix things up. Acacia Research, backed by activist hedge fund Starboard Value, was behind a $9 billion offer valuing the retailer at $64 a share, while private equity firm Sycamore was looking at $65 a share. Kohl’s was said to be looking for $70 a share back then.

Kohl’s CEO Michelle Gass has consistently said that the company has a strategic and financial plan that “will deliver substantial value.” With a sale no longer on the table, the management team now can focus entirely on executing its strategic vision.