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Kohl’s Still in Play To Be Acquired

Kohl's had rejected Acacia Research's $64 per share bid earlier this year.

Image source: Kohl's Corporation

Kohl's Corporation (KSS - $34.07 0.99 (2.906%)  ) shares jumped 12% Wednesday after a Reuters report revived investors' hopes that the company could still be acquired.

The report cited people familiar with the matter as saying that multiple entities are preparing binding bids for the department store chain.

In January 2022, Acacia Research, which is controlled by Starboard Value, an activist hedge fund, bid $64 per share for Kohl's.

Kohl's rejected that bid in February, along with another bid by private equity firm Sycamore Partners, which was reported to be for $65 per share.

Other bidders, including Hudson's Bay, had indicated that a bid as high as $70 per share may have been possible then.

According to the Reuters report, current interested bidders include Sycamore again, along with Franchise Group (FRG), Simon Property Group (SPG) and Brookfield Asset Management (BAM).

Acacia may also be considering a new bid.

The sources said some of the potential buyers had indicated a willingness to go as high as $62 per share this time, recognizing that market conditions had changed significantly since Kohl's rejected Acacia's bid in January.

In the current inflationary environment, which has aggravated capital raisers and tightened funding sources, the thought is that Kohl's would be more willing to consider a lower bid than the one it rejected.

Investment thesis

  • Kohl's stock ended April trading at $57.88 per share, but has dropped over 37% through Tuesday's close of $36.18.
  • Wednesday's move back to $40.48 seems to have stopped the bleeding, and we think there's a better than even chance that a deal gets done in the range discussed in today's report.
  • A $62 takeout would represent a 53% premium to Wednesday's closing price.
  • Kohl's badly missed its first quarter earnings, reporting a profit last week of only $0.11 per share when the street was looking for $0.70 per share.
  • Given that miss, we think management will be much more inclined to entertain a bid that is lower than the $64 per share it rejected i February.
  • The report stated that Oak Street Real Estate Capital is expected to offer financing to the bidders, based on Kohl's extensive real estate holdings which could be worth between $4 billion and $6 billion.

[Note: Article was updated on May 26, 2022, to add a stock chart.]

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Source: Equities News