A Wisconsin senator has joined the fray in the tug of war for Kohl’s future.
With the department store confirming earlier this month that multiple parties including Hudson’s Bay Co. are throwing their hat in the ring with buyout offers for the company, Sen. Tammy Baldwin (D-Wisc.) wrote a letter to Kohl’s board of directors urging it to reject offers that put workers at risk of losing their jobs.
Baldwin’s missive urged the Menomonee Falls, Wisc.-based retailer to consider each bidder’s long-term strategy, and turn down any offers that include plans to dramatically increase debt, sell off assets such as real estate for a sale-leaseback, inflate shareholder payouts at the expense of reinvesting in the business, or pursue any other proposal that could put Wisconsin workers and communities at risk by increasing the likelihood of bankruptcy.
Private equity company Sycamore Partners and Acacia Research, a firm backed by activist hedge fund Starboard Value, have reportedly been linked to potential bids for the retailer. Kohl’s already rejected the Acacia offer, but said in March that more than 20 potential suitors have been in contact with its advisor, Goldman Sachs, about a possible takeover.
Roughly 8,000 of the company’s almost 100,000 employees work in Wisconsin, Baldwin said. Kohl’s did not immediately respond to a request for comment.
Baldwin pointed to former department store-turned-eyewear retailer Shopko, a Wisconsin-based business under the ownership of private equity that filed for bankruptcy in 2019 before closing most of its then-360 stores and selling off the real estate. Shopko was purchased by an affiliate of Sun Capital Partners in 2005 for approximately $1.1 billion, but the retailer accrued significant debt over the next decade-plus and fell into a rocky relationship with creditors. Prior to the bankruptcy, Shopko owed creditors $439.8 million.
The senator said that roughly 3,000 people in her state lost their jobs when Shopko folded.
“Many were promised severance to incentivize them to work until the very end—only to find out that there were not enough funds remaining to pay them,” Baldwin wrote. “Wisconsinites are rightly concerned that history will repeat itself at Kohl’s.”
Ahead of its annual shareholders’ meeting on May 11, the Kohl’s board shared a letter indicating that it would test and measure its go-forward strategic plan against alternatives, with the board committing to pursue the path that would best maximize shareholder value.
“I understand that you are under pressure from various investment funds that have recently purchased large blocks of Kohl’s outstanding shares,” Baldwin said. “These shareholders are now demanding you ‘return capital to shareholders.’ Despite their significant purchases of company stock on the secondary market, keep in mind that these investment funds have not contributed any actual capital to the company. Therefore, I believe that the demand that ‘their’ capital be returned through stock repurchases is a sleight of hand that only serves to enrich short-term shareholders.”
In December, activist investor Engine Capital urged Kohl’s to either follow Saks’ recent decision to split its e-commerce and brick-and-mortar businesses into separate companies, or put the organization up for sale entirely. And for the second time in a year, another minority stakeholder and noted activist investor, Macellum Advisors, sought to shake up the department store’s board of directors. Early in 2021, Kohl’s agreed to add two of Macellum’s suggested nominees, but the investment firm again nominated another slate of 10 independent candidates for the board last month.
Kohl’s scoffed at Macellum’s move, adopting a shareholder rights plan designed to prevent a hostile takeover. The plan, known in financial circles as a poison pill, allows existing shareholders to buy additional shares at 50 percent discount if a new buyer acquires 10 percent ownership of Kohl’s. Alongside the poison pill, Kohl’s issued a separate letter to its shareholders, calling Macellum’s efforts “unjustified and unwarranted and highly concerning.”
While public companies often tout maximizing shareholder value as a top priority, Baldwin noted in her letter that this could risk putting “short-term profits ahead of long-term prosperity.” She encouraged Kohl’s to support a “stakeholder model” in which all parties—including the employees and communities the retailer impacts—and their interests, must be considered.
In particular, Baldwin highlighted a Milwaukee Journal Sentinel article emphasizing how Kohl’s employees have donated “millions of hours” to local nonprofit organizations in a benefit to the retailer’s surrounding communities.
“If you only consider proposals that maximize shareholder value, you risk overlooking contributions like these that make Kohl’s a vital community asset to Wisconsin,” Baldwin said.