Kohl’s Initiates Poison Pill to Stop Hostile Takeover; Shares Jump

The Board of Directors of American department store chain Kohl’s Corp. (NYSE: KSS) announced that based on the review of its independent financial advisors and recommendation of its finance committee, the current expression of interests received for the potential takeover of the company undermine its value.

Thus, the Board has decided to initiate a limited-time shareholder rights plan, a.k.a. the poison pill, effective immediately to stop any unsolicited takeover of the company. Following the news, shares jumped as much as 3.6% briefly and ended the day up 2% at $59.68 on February 4.

Update on Review of Unsolicited Bids

Following a challenging year triggered by the pandemic, Kohl’s management and Board had to take numerous steps to bolster the company’s financial performance and its stock’s value.

After the 2021 settlement with Macellum Advisors GP, LLC, and other shareholders, a finance committee was formed with independent directors to lead any potential takeover interests and other important financial matters about its future road map. The company also hired Goldman Sachs (GS) and PJT Partners as financial advisors to the Board.

During the last two weeks, Kohl’s has received two buyout bids from activist hedge fund investor Acacia Research, which is backed by Starboard Value, and the other from private equity firm Sycamore Partners.

After considering both proposals and thorough review, the Board has declared that neither proposal sufficiently considers the value of the company based on its future growth and cash flow generation and disregarded them.

The Board will continue to pursue opportunities in the best interest of the shareholders driving long-term value and consistent with its performance and future opportunities. The company will update shareholders on its ongoing strategic initiatives and capital allocation plans at Kohl’s Investor Day on March 7, 2022.

Poison Pill to Stop Unsolicited Takeover

The shareholder rights plan is scheduled to expire on February 2, 2023. The poison pill will ensure that the Board and any financial committee will undertake a thorough review of any expression of interest as well as engage with the interested parties in the best interest of the shareholders.

Under the shareholder rights plan, the Board has decided that once triggered, each shareholder will receive one dividend distribution of one right for each share held by them to shareholders of record on February 14, 2022.

The poison pill will be triggered if any person or a group acquires beneficial ownership of at least 10% or more of the company’s outstanding common stock. In such a case, each shareholder with the right would be entitled to purchase additional shares of the company’s common stock at a 50% discount to current market prices. For passive institutional investors, the trigger is set at 20% or more, and existing holders of more than 10% stakes are grandfathered in.

Official Comments

Kohl’s Chairman, Frank Sica, said, “We have a high degree of confidence in Kohl’s transformational strategy, and we expect that its continued execution will result in significant value creation… The Board is committed to acting in the best interest of shareholders and will continue to closely evaluate any opportunities to create value.”

Meanwhile, Macellum Partners expressed their discontent with Kohl’s decision, and its Managing Partner, Jonathan Duskin, said, “We are disappointed and shocked by Kohl’s hasty rejection of confirmed indications of interest… This morning’s rejections — which come just two weeks after outreach from potential acquirers — only validates for us that a majority of the Board is entrenched and lacks objectivity when it comes to evaluating value-maximizing sale opportunities relative to management’s historically ineffective standalone plans.”

Target Price

The KSS stock has a Hold consensus rating based on 6 Buys, 4 Holds, and 3 Sells. The average Kohl’s price target of $65.15 implies a 9.2% upside potential to current levels. Shares have gained 46% over the past year.

Stock Investors

TipRanks’ Stock Investors tool shows that investor sentiment is currently Very Positive on Kohl’s, with 14.4% of portfolios tracked by TipRanks, increasing their exposure to KSS stock over the last 7 days.

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