Activist organization retracts proposed Kohl's board members, abandoning ambition for leadership control.
In a series of events, an activist investor group, including Macellum Advisors, Ancora Holdings, Legion Partners Asset Management, and 4010 Capital, have taken aim at Kohl's, a struggling retail giant. The group, which holds a 9.5% stake in Kohl's, has been vocal about their dissatisfaction with the company's performance and direction.
On March 11, 2021, the group filed a revised proxy statement with the Securities and Exchange Commission, outlining their concerns and proposing potential changes. They are recommending potential sale leaseback transactions to unlock $7-8 billion of real estate value on Kohl's balance sheet. The group is also pushing for changes in merchandising, inventory management, customer engagement, and expense rationalization at Kohl's.
The activist group has been critical of Kohl's borrowing practices, questioning the necessity of cash borrowing during the pandemic and taking issue with $600 million in unsecured debt due in 2025, at 9.5% interest, that Kohl's took on in April. They have also criticized the borrowings as "ill-conceived" and "poorly negotiated," mentioning a prohibitively expensive make-whole call premium of $224 million if the notes were repaid today.
Kohl's, on the other hand, has defended its board as adequately refreshed and more experienced in retail than the activists' recommendations. The company has pointed out that some of the activist group's nominees lack "critical relevant experience" and "meaningful digital experience," which now accounts for 40% of Kohl's sales.
The ongoing dispute between the two parties revolves around the activist investors demanding strategic and board-level changes to rescue Kohl’s from its structural challenges and declining performance. Kohl's management, however, has faced operational challenges and has not yet delivered a turnaround.
The company has struggled with adapting to changing consumer preferences and heavy competition from online retailers and discount stores. Kohl's forecasted a 5% to 7% decline in sales for fiscal 2025 and a 4% to 6% drop in comparable sales, citing ongoing headwinds like decreased store traffic and poor online growth.
The leadership instability is notable, with the recent departure of CEO Ashley Buchanan following a conflict-of-interest scandal, leaving the company with an interim CEO. Despite sporadic rallies in share price fueled by retail investor “meme stock” enthusiasm, experts characterize these as irrational and unrelated to underlying business fundamentals, which remain weak.
The activist group has targeted Kohl's for board representation and potentially a strategic overhaul, reflecting long-standing investor dissatisfaction with the company’s direction and performance. Activists typically push for initiatives to unlock shareholder value, which may include cost-cutting, asset sales, changes in management, or exploring takeover bids. Kohl's has been a frequent target for activist campaigns, signaling ongoing pressure from investors for significant change and effective management.
As the saga unfolds, Kohl's and the activist group continue to exchange public statements and proposals. On February 17, Kohl's named a new independent director, Robbin Mitchell, and on February 24, Kohl's publicly pushed back against the activist group. Kohl's latest earnings report, showing sales and margin declines in the fourth quarter and full year, with a $262 million operating loss for the year, has further fuelled the debate.
The group has reduced the number of nominees from nine to five, aiming to replace five of Kohl's directors. However, Kohl's has noted that one of the nominees has presided over four companies that filed for bankruptcy. The group has also expressed dissatisfaction with Kohl's language, publishing a press release on Thursday expressing their concerns.
The future of Kohl's remains uncertain as the battle between the activist investors and the company's management continues. The rallies in Kohl’s stock led by meme-stock trading have added volatility but do not reflect a resolution of these fundamental issues.
- The activist group has criticized Kohl's borrowing practices during the pandemic, questioning the necessity of cash borrowing and expressing concern over unsecured debt.
- The ongoing dispute between Kohl's and the activist group is centered around the investors demanding strategic and board-level changes to help Kohl’s navigate structural challenges and improve performance.
- The activist group has presented the potential of sale leaseback transactions to unlock $7-8 billion of real estate value on Kohl's balance sheet as part of their proposed changes.
- The ongoing pressure from investors for significant change and effective management is evidenced by the frequent targeting of Kohl's by activist campaigns.
- As the debate continues, the future of Kohl's is uncertain, with the rallies in Kohl’s stock led by meme-stock trading adding volatility but not addressing the fundamental issues at hand.
