Franchise Group plans to lower Kohl’s offer closer to $50 a share from around $60, source says

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People walk near the entrance to a Kohl’s department store on June 7, 2022 in Doral, Florida. Kohl’s said it has entered into exclusive negotiations with Franchise Group, which is offering to buy the retailer for $60 per share.

Joe Raedle | Getty Images

Retail holding company Franchise Group is considering lowering its offer for Kohl’s to closer to $50 a share from around $60, according to a person familiar with the negotiations.

Kohl’s shares fell more than 8% on Wednesday afternoon to around $39 per share.

Franchise Group, owner of The Vitamin Shoppe and other retailers, is actively considering whether buying Kohl’s is the best use case for Franchise Group’s capital, said the person, who asked to remain anonymous because the conversations are private and continuous. The company is increasingly concerned that the environment for some retailers will get grimmer from here, especially if the United States were to enter a recession, the person said.

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Franchise Group has aligned financing with lenders, the person added. But the company, led by CEO Brian Kahn, is now weighing a lower price as retailers grapple with bloated inventory and higher prices.

Earlier this month, Franchise Group made a $60 per share offer to acquire Kohl’s at a valuation of around $8 billion. The two companies then entered a three-week window during which they can finalize all due diligence and final financing arrangements. It ends this weekend.

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The off-mall department store chain was first asked to consider a sale or other alternative to boost its share price in early December 2021 by New York-based hedge fund Engine Capital. At the time, Kohl’s shares were trading around $48.45.

Then, in mid-January, activist hedge fund Macellum Advisors pressured Kohl’s to consider a sale. Macellum CEO Jonathan Duskin argued that executives were “materially mismanaging” the company. He also said Kohl still has a lot of potential to unlock with his real estate.

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Earlier this year, Kohl’s received a $64 per share offer from Acacia Research, backed by Starboard, but deemed the offer too low.

Shares of Kohl opened Wednesday at $41.52 and traded at $34.64 at the end of May.

Representatives for Kohl’s and Franchise Group did not immediately respond to TSWT’s requests for comment.

This story is developing. Please check for updates.

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