Shares of Kohl’s Corp. jumped following reports that the company was considering going private, while one analyst said the stock could garner a nearly 90 percent premium in a leveraged buyout deal.
After rising 5 percent midday, shares closed up 4.6 percent to $50.08.
The company’s board was said to be toying with the idea of going private as well as hiring an investment bank to consult it on various options.
Kohl’s did not return calls for comment.
Stifel analyst Richard Jaffe told clients in a research note that reviewing recent leveraged buyouts, “we believe that an eight-times [pretax] multiple is reasonable, which would suggest an approximate $95 stock price.”
Jaffe noted this would reflect an 89 percent premium to the current stock price. Although the stock is down 20 percent for the 52-week period, for the trailing three months, shares of Kohl’s is outperforming its peers. The stock is up 1.3 percent, which compares to Target Corp.’s 10 percent decline for the past three months and J.C. Penney Co. Inc.’s 27 percent decline. Shares of Macy’s Inc. are off 30 percent for the three-month period.
Taking the company private has its benefits, as it would free up the retailer from Wall Street’s scrutiny. It would allow the company to engage in longer-term strategies without getting punished in the short term by investors. This past fall, chairman, chief executive officer and president Kevin Mansell spoke in detail during the WWD CEO Summit about the company’s long-term strategies.
Mansell said over “three years we weren’t able to get any growth” so the company “decided we were going to have to be innovative and figure out how to build a new Kohl’s for the future.” That future was anchored by offering better products at more value-driven price points and an overall improved in-store experience. Smaller-format stores were also in the works.
One key question is whether the company is too big to be taken private. As classified by the S&P, Kohl’s is the second-largest U.S. department store behind Macy’s Inc. Kohl’s market capitalization is $9.1 billion, and it has an enterprise value of $13.7 billion, according to S&P Capital IQ. The retailer operates 1,162 stores in 49 states.
Jan Rogers Kniffen, ceo of equity research firm J. Rogers Kniffen Worldwide Enterprises LLC, said shares of Kohl’s are not “low enough yet to make it possible.”
“It is too big to privatize,” said Kniffen, adding that if the company could borrow the money to do it, it still would be “too expensive” and at a time when they’re trying to scale back its store count.
Kniffen said Kohl’s is positioned in a highly competitive space, with fast-fashion firms and discounters such as Target chomping down on its flanks.
However, Craig R. Johnson, president of Customer Growth Partners, said Kohl’s “is on the cusp of a nice rebound, with two new (or fairly new) women in senior roles at the company having been the catalyst for a solid holiday season.”
This past fall, Sona Chawla was named to the newly created position of chief operating officer, while in the summer summer, Michelle Gass was named chief merchandising and customer officer. “Also, we believe Kohl’s as an off-mall, value-oriented retailer, was immune from the traffic woes that beset its mall-based competitors,” Johnson said.
Johnson said he’s not “convinced that going private is necessary to build upon the marketing, merchandising and online progress that Kohl’s has already made.
“Also, with the next generation of leadership standing at the threshold of the ceo post when [Mansell] hands over the reins, putting a private equity player in the driver’s seat at this stage wouldn’t exactly be a ringing vote of confidence in Michelle Gass or Sona Chawla — both highly capable executives,” Johnson added.
Kohl’s was founded in 1946 as a supermarket by Maxwell Kohl in Milwaukee. In 1962, the first department store was opened. Ten years later, the British-American Tobacco Co. took a controlling interest in the retailer and by the late Seventies, Kohl family members who managed the company left. In 1986, an investment group bought the company, and it went public in 1992.
The company’s current board includes some industry players, including Peter Boneparth, chief executive officer of Women’s Moderate Apparel Group and former ceo of Jones Apparel Group. Boneparth is an attorney with investment banking experience. Frank Vincent Sica, partner and managing partner of Tailwind Capital Group LLC, also sits on the board at Kohl’s.