Franchise Group considers lowering Kohl's bid closer to $50 a share from $60

Franchise Group considers lowering Kohl’s bid closer to $50 a share from $60

People walk near the entrance of Kohl’s department store on June 7, 2022 in Doral, Florida. Kohl’s announced that it has entered into exclusive negotiations with Franchise Group, which is proposing to buy the retailer for $60 per share.

Joe Raedle | fake images

Retail holding company Franchise Group is considering lowering its offer for Kohl’s to about $50 a share from about $60, according to a person familiar with the deal talks.

Kohl’s shares fell more than 8% Wednesday afternoon to about $39 a share. They traded as low as $34.64 at the end of May.

Franchise Group, which owns The Vitamin Shoppe and other retailers, is actively considering whether buying Kohl’s is the best use case for Franchise Group’s capital, said the person, who asked to remain anonymous as the talks are private and ongoing. The company is increasingly concerned that the environment for certain retailers could get bleaker from here, particularly if the US were to enter a recession, the person said.

Franchise Group has lined up financing with lenders, the person added. But the company, led by Chief Executive Officer Brian Kahn, is eyeing a lower price now as retailers generally grapple with inflated inventory and higher prices.

Big-box retailer Target said earlier this month it will take a short-term hit to profit as it cancels orders and markdowns on unwanted merchandise ahead of busy back-to-school and holiday shopping seasons. Analysts expect many retailers to take a similar hit, and it could be a bigger hit for those not as successful at getting products off shelves.

Earlier this month, Franchise Group proposed a $60 per share offer to acquire Kohl’s at a valuation of approximately $8 billion. The two companies then entered an exclusive three-week window during which they can finalize any due diligence and final financial arrangements. That ends this weekend.

In early December 2021, New York-based hedge fund Engine Capital first urged the off-mall department store chain to consider a sale or other alternative to boost its share price. At the time, Kohl’s shares were trading around $48.45.

Then, in mid-January, activist hedge fund Macellum Advisors pressed Kohl’s to consider a sale. Macellum CEO Jonathan Duskin argued that executives were “materially mishandling” the business. He also said Kohl’s had a lot of potential left to unlock with its real estate.

Earlier this year, Kohl’s received a $64 per share offer from Starboard-backed Acacia Research, but deemed the offer too low.

In mid-May, Kohl’s reported that its sales for the three-month period ending April 30 fell to $3.72 billion from $3.89 billion in 2021.

The retailer cut its profit and revenue forecast for the full fiscal year, also clouding the outlook for a potential deal.

Representatives for Kohl’s and Franchise Group did not immediately respond to CNBC requests for comment.

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