Hudson’s Bay Co. has made a bid for Kohl’s Corp., according to a source close to the bidding process.
The source said that the bid was above the $64 to $65 a share previously offered by other interested parties.
“This would be a strategic investment,” said the source.
Goldman Sachs, which is helping Kohl’s in the process and is said to be running the auction, declined to comment.
Sources said first round bids were due on Wednesday.
And investors reacted strongly to reports that Hudson’s Bay had entered the fray, seemingly at the last minute, sending shares of Kohl’s up 17.3 percent to $63.13, giving the company a market capitalization of $8.8 billion.
The environment is ripe for a big deal, even if Kohl’s might not be.
Retailers are buffeted by a rapidly changing landscape with consumer shopping habits resetting during the pandemic and with the mix between brick-and-mortar and e-commerce evolving. Interest rates are still low — but now rising, meaning borrowing to complete a big deal is not going to get any cheaper. And the stock market is still near enough it’s high that selling now at a good price would not be a fire sale.
But Kohl’s has been dragged into the process by activist pressure and outside interest in a deal, with would be buyers looking at all manner of ways to run the business differently. And while the board’s fiduciary duty to shareholders more or less compels it to consider offers, directors could also set a high price based on their belief in the company’s strategic plan and outlook.
As the future of Kohl’s is potentially hammered out, Kohl’s chief executive officer Michelle Gass is looking to keep the company’s employees focused.
Before a town hall with employees this month, the CEO detailed some of the back and forth with activist Macellum Advisors, noting such investor campaigns are common for public companies.
“While we find the activist’s claims and critiques to be uninformed and misleading, Macellum is continuing to actively make public announcements and garner additional media coverage,” Gass said, according to a filing with the Securities and Exchange Commission. “We can expect to see more media speculation in the coming weeks and months.”
She described the inbound interest to buy the company as “a reflection of our strong position and growth potential.”
“The board is continuing to pursue all reasonable opportunities to drive value, consistent with its fiduciary duties,” she said. “We publicly reiterated that we have a strategic and financial plan that will deliver substantial value. Our board is testing and measuring that plan against other alternatives.”
Just what those alternatives are will become more clear — at least in the Kohl’s boardroom — as the auction proceeds from first round bids into a second round, if warranted.
Hudson’s Bay, being based in Toronto, would be interested in opening Kohl’s stores in Canada, and also possibly separating the Kohl’s brick-and-mortar store business and the kohls.com digital business into separate companies, similar to how HBC separated its Saks Fifth Avenue, Saks Off 5th and The Bay divisions into separate physical stores and dot-com businesses last year.
“Hudson’s Bay knows how to create value for its shareholders,” said one financial source.
Hudson’s Bay could also perceive value in Kohl’s real estate, and possibly sell off some locations and lease them back.
Hudson’s Bay’s bid for Kohl’s was reported by Axios Wednesday morning.
The retailer has been under pressure from activist investors, in particular Macellum and Engine Capital, to increase shareholder value, and consider selling the company, monetizing its real estate, or separating its dot-com and brick-and-mortar store businesses into separate companies. Kohl’s has rejected those ideas and at least two unsolicited takeover bids, reportedly from Sycamore Partners, a private equity firm that has Belk, Loft, Express, Hot Topic, Ann Taylor and other retailers in its portfolio, and Acacia Research Corp., said to be in the $64 to $65 range. Kohl’s has been working with advisers and Goldman Sachs to engage with those making offers for the company. In addition, Kohl’s set up a poison pill, called a limited-duration shareholder rights plan, to discourage takeover bids.
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Kohl’s is under no obligation to disclose offers for the business that it may be weighing.
Asked to comment about Hudson’s Bay, a Kohl’s spokeswoman said, “As previously disclosed, the board’s engagement with potential bidders is robust and ongoing. The board will measure potential bids against a compelling stand-alone plan and choose the path that it believes maximizes shareholder value.”
Macellum, which has roughly a 5 percent stake in Kohl’s, reacted to Kohl’s rejection earlier this year of takeover offers by proposing a complete overhaul to the Kohl’s board through a vote which would be tallied at the retailer’s next annual meeting of shareholders. Macellum has nominated 10 individuals for the board and believes Kohl’s real estate is worth in the range of $7 billion to $8 billion. Kohl’s stores are generally located off-mall, in strip centers, and average 80,000 square feet.
Last year, Macellum was successful in getting two individuals of its choice placed on the board, and a third person was added to the board by mutual agreement between the activist and Kohl’s.
Kohl’s Corp. saw its fourth-quarter net income slip, but swung into the black for all of 2021, doubled its dividend, and sees Sephora as the key driver of sales gains this year.
Net income — impacted by inventory shortages, slowed traffic due to Omicron and some tax implications — declined 13 percent to $299 million for the quarter ended Jan. 29, from $343 million in the year-ago period. Net income in the 2020 quarter had a big tax benefit.
Operating income, which eliminates the impact of the tax difference, was up 42 percent to $450 million in the last quarter, from $316 million in the 2020 quarter.
For the year, however, the net reached $938 million, compared to a loss of $163 million in 2020, which was more heavily impacted by the pandemic.