Shares of American department store chain Kohl’s (NYSE: KSS) plunged as much as 12% yesterday on reports that its probable buyer, The Franchise Group (NASDAQ: FRG), is considering lowering the buyout offer to $50 per share from $60 per share. KSS stock ended the day down 8.8% at $38.61 on June 22.
According to CNBC, a person involved with the deal said that retail holding company Franchise Group is deliberating whether the price offered for Kohl’s takeover is suitable in the current environment.
A few retailers are facing excessive inventory pile-ups, forcing them to sell off at discounted prices and take margin hits. With the U.S. expected to enter into a recession any time soon, retailers will take a massive hit, coupled with the already kicked-in inflationary pressures, slowing demand, and supply-chain challenges.
Accordingly, Franchise Group is mulling a lower bid price of around $50 per share in anticipation of a weaker economy going forward. After examining several buyout proposals, Kohl’s’ Board had decided to go ahead with FRG’s proposal.
The two parties had entered into an exclusive three-week negotiation period to undertake due diligence and complete the financing arrangements, though Board approval of both companies is pending. That period ends this weekend, and FRG is already showing signs of revaluing the bid, which may not end well.
KSS Stock Prediction
Amid Kohl’s buyout bedlam, analysts on the Street have assigned a Hold consensus rating on KSS stock based on five Buys, five Holds, and two Sells. The average Kohl’s price forecast of $49.45 implies 28.1% upside potential to current levels. Meanwhile, KSS stock has lost 20.5% year-to-date.
Hedge Funds Weigh In
The TipRanks Hedge Fund Trading Activity tool shows that confidence in Kohl’s is currently Very Negative, as seven hedge funds decreased their cumulative holdings of KSS stock by 459,600 shares in the last quarter.
Parting Thoughts
Although Kohl’s is ready to go private, the current economic scenario does not provide a good cushion for a healthy bargain. With the Franchise Group revaluing the bid lower, the negotiations might not work out in the best interests of the company and its shareholders.
