Kohl’s Confirms Receipt of Buyout Bids; Shares Surge 36%

American department store chain Kohl’s Corp. (NYSE: KSS) has confirmed the receipt of buyout offers from prospective investors. The news propelled the shares up 36% to close at $63.71 on January 24.

Kohl’s – Takeover Candidate

Lately, Kohl’s has been struggling to strategically change its business trajectory. Amid the COVID-19 pandemic, brick-and-mortar retailers were hit hard due to restrictions and lockdowns coupled with the growing frenzy for online channels and at-home services.

Kohl’s investors have been pushing the company to implement a turnaround strategy, including putting itself up for sale. Macellum Advisors, one of Kohl’s activist investors, is particularly adamant on this topic and has repeatedly pushed Kohl’s to become a buyout candidate.

On Friday, Kohl’s received a bid from activist hedge fund investor Acacia Research, which is backed by Starboard Value. The bid valued the shares at $64 a piece, an aggregate sum of $9 billion.

On Sunday, Kohl’s confirmed the receipt of another buyout offer. This time from private equity firm Sycamore Partners. According to CNBC, Sycamore has offered to buyout Kohl’s for at least $65 per share, which is higher than the first bid placed by Acacia Research.

Potential buyers are interested in selling Kohl’s real estate assets and suggest a sale-leaseback transaction to free up capital. Though Kohl’s has neither officially confirmed the names of the potential buyers nor the bid price, it seems quite probable that the company might finally consider going private.

In an interesting turn of events yesterday, shareholders of other retail chains pushed the shares up in expectation of a similar fate for these companies. Macy’s Inc. (M) jumped 18%, Nordstrom, Inc. (JWN) was up 12.9%, and Dillard’s, Inc. (DDS) rose 14.7% on January 24.

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Company Comments

Commenting on the buyout speculation, Kohl’s said, “Kohl’s Corporation today confirmed that it has received letters expressing interest in acquiring the Company. The Kohl’s Board of Directors will determine the course of action that it believes is in the best interests of the Company and its shareholders. Kohl’s does not intend to further comment publicly on these matters unless it determines it is in the best interests of shareholders to do so.”

Analysts’ Take

Responding to the takeover news, Citigroup analyst Paul Lejuez reiterated a Buy rating on the stock with a price target of  $73, which implies 14.6% upside potential to current levels.

Lejuez believes Kohl’s is using appropriate measures to drive growth and that its Sephora partnership is a “game-changer”. Having said that, the analyst acknowledges that Kohl’s is a “mispriced asset”, which is a strong free cash flow generator and doesn’t receive its due credit in the market, further implying that the company must consider the offers.

Overall, the stock has a Hold consensus rating based on 5 Buys, 4 Holds, and 3 Sells. The average Kohl’s price target of $64.67 implies 1.5% upside potential to current levels. Shares have gained 43.6% over the past year.  

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