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Kohl’s List of Suitors Growing Longer by the Day

Hudson’s Bay Co. is making a bid for Kohl’s and Sycamore Partners is said to be weighing one as well.

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 CEO Michelle Gass previously dismissed the first round of interest, saying that the chain’s current strategic and financial action plan “will deliver substantial value,” and that it’s benchmarking its roadmap “against other alternatives.”

Sources believe Kohl’s is holding out for a richer pot, likely above $70 a share. Cowen Equity Research analyst Oliver Chen thinks that $75 to $85 a share isn’t out of the realm of possibility.

That would mark a big step up for Kohl’s stock price, which closed Tuesday’s trading session at $53.82. It popped on Wednesday, rising 17.3 percent to close at $63.11 on speculation that higher offers could be forthcoming. The Wall Street Journal reported that Sycamore was planning an offer in the high $60s a share valuing the company at more than $9 billion. Axios first  reported on Richard Baker’s Hudson’s Bay Co.’s (HBC) interest in Kohl’s.

Others could also jump into the acquisitions game as Goldman Sachs has spoken with “over 20 parties” since January on behalf of Kohl’s, including strategic investors, financial sponsors and real estate-focused investors.

A Kohl’s spokeswoman said the retailer’s board continues to have “robust and ongoing” engagement with potential bidders with an eye on maximizing shareholder value. Spokesmen for Sycamore and HBC each declined comment.

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An analyst familiar with Kohl’s recent investor presentation believes the company is likely to reject any new offers in favor of its “compelling standalone plan.” This individual told SJ on Wednesday that although the company didn’t say anything new during its presentation, executives did point out that they are on track with plan. Key objectives include rolling out Sephora to 400 doors and reaching $2 billion in volume by 2025, generating $500 million in sales with the addition of 100 new small format stores and growing the SO juniors line to $1 billion. Kohl’s executives see a path to grow digital sales to “at least $8 billion” from $6 billion. The analyst believes Kohl’s stock could be worth around $84 a share for an $11.8 billion valuation if the company actually follows through on achieving those targets.

Both Sycamore and HBC might be scared off by that higher price.

While Sycamore is better known for investments in fashion brands and specialty apparel chains such as Talbots and Hot Topic, it owns the department store retailer Belk and the big-box chain Staples. And HBC operates HBC stores across Canada as well as Saks Fifth Avenue (SFA). HBC famously separated SFA’s e-commerce including Saks Off Fifth from its brick-and-mortar business.

Activist investors have been pushing for much larger department store operations such as Macy’s and Kohl’s to decouple à la Saks. Macy’s CEO Jeff Gennette said the risks of breaking stores and e-comm into separate businesses are “too high.” Kohl’s might come to a similar conclusion.

But what exactly would Baker do with Kohl’s if HBC puts in a successful bid? The retail executive is better known for making real estate plays. He ran the property development firm National Realty & Development Corp. Equity Partners (NRDC), which went on to acquire Lord & Taylor and its flagship Fifth Ave. store for $1.2 billion. Baker followed with the acquisition of HBC, one of Canada’s oldest department stores, in 2008. HBC became a publicly traded firm in 2012, and followed that with the acquisition of Saks Corp. in 2012. HBC later went private and sold Lord & Taylor for $100 million to San Francisco rental firm Le Tote. Lord & Taylor’s Manhattan flagship store was sold to WeWork and Rhône Capital for $850 million.

Retail sources said Kohl’s could be a good fit for HBC, as the Sephora and Amazon partnerships provide some grounding for the business and could provide the third anchor to Hudson’s Bay and SFA. Walter Loeb, former retail executive and retail analyst, and now a retail consultant, has a caveat: “The plan for HBC to own Kohl’s could work provided Baker keeps management in place so CEO Michelle Gass and her team can continue to execute on their plan for the retailer.”

Editor’s note: This article was updated at 1:20 p.m. Thursday to clarify that Sycamore has not yet submitted a bid for Kohl’s.