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2022-06-03 16:45

Shares of Kohl’s Corp closed 1.0% up on Friday after a Wall Street Journal report suggested that Sycamore Partners and Franchise Group have placed bids to take over the American department store chain.

Franchise Group has a superior offer

Reportedly, private equity company Sycamore Partners is willing to pay roughly $55 a share for Kohl’s Corp. In comparison, Franchise Group has placed a more lucrative $60 a share proposal. These offers value Wisconsin-headquartered company at $7.0 billion to $8.0 billion. Bidders would be interested in monetizing Kohl’s real estate holdings, people familiar with the matter speculated.

Remember that Kohl’s already rejected takeover bids as high as $65 a share earlier this year, citing undervaluation. Ever since, however, the stock market has been in turmoil on fears of inflation, rate hikes, and a slowdown in the global economy. According to Professor Brian Quinn:

“The stock price that they thought internally they could maybe hit, that no longer looks reasonable. My guess is that if you had told the board at Kohl’s what would happen in the marketplace in April and May, they would have sold the company. But the thing is, nobody knew what the future was going to bring.”

At present, Kohl’s is trading at $41 a share. Therefore, even the lower Sycamore bid represents a 30% upside in its shares from here. Sycamore and Franchise Group have been showing interest in taking over Kohl’s Corp since mid-March.

Bids will be considered in the coming week

Further details on the proposed agreement are yet to be known. Kohl’s Corp has not made an official comment on the news this Friday.

Bids are expected to be reviewed by the company’s board in the coming days. If a deal does come together, it would take weeks for the final decision to be made. It was activist investor Macellum Advisors that initially proposed in January 2022 that Kohl’s should consider a sale to create shareholder value.

The news comes weeks after Kohl’s reported its financial results for the first quarter that came in significantly below the FactSet Consensus. The retailer earned 11 cents a share on $3.662 billion in revenue. In comparison, Wall Street had expected a much higher 69 cents of per-share earnings and $3.684 billion in revenue for Q1.

Wall Street, at present, rates Kohl’s Corp at “Hold” with a price target of $50.54 a share on average, which represents a roughly 21% upside from here. The $5.36 billion company currently trades at a PE multiple of 6.45.