Updated on June 9: The potential sale of Kohl’s (KSS) has just taken a turn that may prove to be a bump in the ride. The Franchise Group (FRG), which has made a bid for Kohl’s and valued the latter at about $8 billion, has a market capitalization of roughly $1.5 billion.
FRG now wants to execute the transaction by selling Kohl’s real estate and adding debt to its books. The strategy may not work on such a large scale as Kohl’s operates 1100 stores and owns 410 of these locations.
Moreover, such a strategy has earlier failed to produce the desired outcome in cases such as Toys “R” Us and Shopko. For Kohl’s, the combination of debt and rent payments could mean an impact on margins in an already upward ticking Fed rate cycle. Furthermore, the retailer would have less room for maneuverability in the event of lower sales.
At the end of the day, a final deal may or may not take off. What happens next will be a key point of interest and concern for the company’s investors.
Shares of retailer Kohl’s gained about 13.5% during the after-hours session on Monday after the company announced it had entered into exclusive negotiations with Franchise Group.
The development comes after Sycamore Partners and Franchise Group lined up to acquire the retailer last week.
Kohl’s has now entered into exclusive negotiations with Franchise for a period of three weeks. Franchise, which holds a number of brands, has made a bid for $60 per share. Kohl’s shares closed at $41.50 on June 3.
The period of exclusivity allows Franchise and its financing partners to finalize due diligence and financing arrangements while the parties negotiate over binding documentation.
Additionally, the acquisition remains subject to approval from the Boards of both companies. Kohl’s has stated that it “will have no further comment until an agreement is reached or the discussions are terminated.”
Positive Insider Actions
Along with the acquisition action, the TipRanks insiders tool has thrown up a very interesting trend for Kohl’s. Company insiders have bought shares worth $386,300 in the last three months, indicating a positive insider confidence signal for the stock.
Retail Investors Are Sticking with Kohl’s
Moreover, the TipRanks database highlights that investor sentiment remains very positive about Kohl’s. At the time of writing, of the top-performing portfolios on TipRanks, the number of portfolios holding Kohl’s has increased by 8.8% over the past 30 days alone.
After months of back and forth and multiple suitors, Kohl’s is finally entering the next stage of the sale process. How Kohl’s reacts to the proposed deal structure remains to be seen.