Kohl’s suitor pulls the plug

2022.08.08

The Delaware, Ohio-based owner of Top 100 furniture retailers American Freight and Badcock Home Furniture & more, issued a statement on July 1 that its negotiations to acquire Kohl’s Corporation have terminated.

“Franchise Group appreciates the time and attention afforded to it by Kohl’s management and advisors, as well as the trust and support it received from its financing partners in connection with the potential transaction. Franchise Group remains committed to evaluating internal and external opportunities that it believes will enhance shareholder value,” the statement concluded.

Kohl’s said the current financing and retail environment was reflected in the price and terms of FRG’s most recent proposal, which it felt was not fully executable or complete.

“Throughout this process, the board has been committed to a deep and comprehensive review of strategic alternatives with the goal of selecting the path that maximizes value for shareholders,” said Peter Boneparth, chair of the board. “After engaging with more than 25 parties in an exhaustive process, FRG emerged as the top bidder and we entered into exclusive negotiations and facilitated further due diligence. Despite a concerted effort on both sides, the current financing and retail environment created significant obstacles to reaching an acceptable and fully executable agreement. Given the environment and market volatility, the board determined that it simply was not prudent to continue pursuing a deal. As always, the board remains open to all opportunities to maximize value for shareholders, and we look forward to actively engaging with our shareholders as we move forward to ensure we are considering their perspectives in our plans.

“Kohl’s is a financially strong company that generates substantial free cash flow and has a clear plan to enhance its competitive position and improve performance over the long term,” Boneparth continued. “Highlighting the Board’s confidence in the company’s strategic plan, the board reaffirms its commitment to an accelerated share repurchase program following the company’s Q2 earnings results announcement.”

At the time, it was reported that Franchise Group intended to contribute approximately $1 billion of capital to the transaction, all of which was expected to be funded through a corresponding increase in the size of its secured debt facilities. A majority of the financing for the transaction was anticipated to be provided on the basis of the real estate assets of Kohl’s Corp. Other than the increased secured debt facilities of Franchise Group, none of the financing for the transaction was expected to be recourse to Franchise Group.

In late June, several outlets, including CNBC, cited sources who said the furniture store franchising operation might cut back its bid from $60 to $50 per share. CNBC also reported that Franchise Group, which also owns The Vitamin Shoppe, was “actively considering whether buying Kohl’s is the best use case of Franchise Group’s capital.”

Reuters’ sources told the wire service that Franchise Group sought to retain Kohl’s top management team, including CEO Michelle Gass.

In April, it was reported that Franchise Group was offering up to $69 per share to acquire the mid-tier department store chain, which operates more than 1,100 stores.

Prior to Franchise Group’s exclusive negotiations, Simon Property Group and Brookfield Asset Management, the owners of JCPenney made an offer to buy Kohl’s for approximately $8.6 billion, according to a report in The New York Post.