Kohl’s fortified with new ally in activist battle

Menomonee Falls, Wis. – As the clock ticks down to Kohl’s shareholder meeting next week, its board is welcoming some reinforcement.

Proxy advisory firm Glass Lewis has recommended that Kohl’s shareholders vote for all 13 of the company’s director nominees for the annual shareholder meeting on May 11.

“In our view, the company’s board currently comprises a reasonably well-rounded mix of qualified directors who have complementary experience, qualifications and backgrounds across various relevant industries and disciplines,” the firm stated in its report.

The backing departs from a recent Institutional Shareholder Services (ISS) recommdation that Kohl’s shareholders should elect some nominees from the dissident Macellum Advisors slate. They include former Macy’s Inc. exec Jeffrey Kantor and Pamela Edwards, who recently retired as chief financial officer of apparel and home retailer Citi Trends.

In contrast, Glass Lewis suggested adding dissident nominees to Kohl’s board of directors might impede the retailer’s potential acquisition – “whether that means a delay in the sale process so that the dissident nominees can get up to speed with all matters pertaining to the company, a reworking of the company’s financial projections that will have to be evaluated and scrutinized by prospective bidders or a new dual-track process that includes a review of a potential sale-leaseback transaction.”

There are currently more than 25 bids to acquire Kohl’s business, including offers from the owners of JCPenney (Simon Property and Brookfield Asset Management), Canadian department store chain Hudson’s Bay and a consortium backed by private equity firm Leonard Green & Partners LP, which includes Authentic Brands, according to reports.

Glass Lewis said the board’s review of strategic alternatives has been “reasonably transparent,” adding it saw no evidence that the board is not activity entertaining all credible offers.

In its recent evaluation of the dueling board slates, ISS took a dim view of Macellum’s motivations, characterizing the firm’s control fight as driven by an interest in unlocking value from the retailer’s real estate.

Glass Lewis seems to see the situation similarly, cautioning that the Macellum Advisors proposal for a sale-leaseback could destroy value.

“Simply because a private equity buyer may be considering a sale-leaseback to partially finance a leveraged buyout does not necessarily mean that a sale-leaseback would be a prudent move for the company on a standalone basis,” Glass Lewis stated.

It went on, “We also question how potential buyers of the company would react to the company pursuing a significant sale-leaseback, as such a move could result in the loss of a potential deal financing source in the context of a takeover proposal…To the best of our knowledge, the dissident has not highlighted any successful precedents where a retailer has undertaken sale-leasebacks on the scale the dissident has proposed here.”


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