Kohl’s board must be sent packing, hints activist investor

Out with the old and entrenched board members struggling at Kohl’s, in with the new and open-minded.

That’s the hot take from Yahoo Finance’s chat on Monday with activist investor Macellum Capital, which is back in the trenches slinging the mud at Kohl’s after a bizarre bit of posturing by the retailer Friday.

“The board doesn’t appear to be working on shareholders’ behalf. It’s troubling to us, and we will continue to put pressure on the board by nominating another slate and giving shareholders an opportunity to weigh in,” Macellum managing partner Jonathan Duskin said .

Duskin — who has been doing battle with the long-serving board of Kohl’s (and some insiders would say, underperforming) since early 2021 — plans to put forward a new slate of directors later this week.

The ratcheting up in tensions between the pair comes after Kohl’s rejected two reported buyout deals received just several weeks ago.

Kohl’s is said to have received a $9 billion take private offer from Starboard Value, according to a person familiar with the matter. Retail investing powerhouse Sycamore Partners was also reportedly kicking the bonds on Kohl’s.

“The Kohl’s Board of Directors (the Board) has determined, following a review with its independent financial advisors and upon the recommendation of its Finance Committee, that the valuations indicated in the current expressions of interest which it has received do not adequately reflect the company’s value in light of its future growth and cash flow generation.” Kohl’s said in a statement on Friday.

Kohl’s also enacted a “poison pill,” a tactic generally used by companies being targeted for buyout to thwart or shutdown any overtures.

Duskin says he was shocked and disappointed by tactic.

“They sent a chilling message to the market and other potential buyers by putting in a poison pill. This is really an aggressive tactic. You don’t see it often,” said Duskin, adding that the Kohl’s board unlikely took the two buyout offers seriously.

The backstory

To be sure, this is turning into a classic activist investor versus lumbering corporate giant.

Back in April 2021, Kohl’s settled with an activist group led by Macellum. The settlement involved a board shakeup and the approval of a new $2 billion stock buyback plan. Macellum landed two “friends” on the Kohl’s board — former Burlington Stores CEO Thomas Kingsbury and former Denny’s Chief Marketing Officer Margaret Jenkins.

Despite the efforts, Kohl’s shares have continued to languish in large part to heightened competition and ineffective management. Duskin also speculates his two board picks from 2021 have been shut out inside Kohl’s enormous 14-person board, many of which who have been around to see the stock price underperform the S&P 500 by about 50 percentage points in the past five years.

That is alongside Kohl’s seeing a general downtrend in returns on equity, invested capital, gross margins and operating margins for at least five years per analysis of Bloomberg data.

Macellum said in a new letter in mid-January that Kohl’s has done nothing to drive shareholder value, pointing to the pressured stock price (the letter hit before deal rumors hit the markets) since the two reached a settlement on April 13.

Besides Macellum, Engine Capital launched a new activist attack of its own on Kohl’s a few weeks ago. In its own sharply worded letter, Engine Capital demands Kohl’s considers a sale in its entirety or splits off its online business (similar to what activist investor Jana is begging Macy’s to do).

Duskin — a 5% shareholder of Kohl’s — thinks Kohl’s could be worth $100 a share. But, that will require aggressive change.

“I don’t think that price can be achieved in the current board/management configuration. I think change has to occur for it to be realized,” Duskin said. “Let’s get retail experts in there with a vision to fix or sell the company. Because if the board isn’t changed and if a refresh isn’t instituted, we will be back to the status quo and get the same results we have gotten for two decades.”

Shares of Kohl’s have gained 7.9% in the past 20 years (using today as a starting price and then going back to this day in 2002). The S&P 500 has gained 412% during that same span, according to Yahoo Finance Plus data.

Kohl’s didn’t respond to Yahoo Finance’s request for comment.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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