Franchise Group joins bidding for Kohl's -sources

Franchise

12/04/2022 13:00

By Svea Herbst-Bayliss
    April 12 (Reuters) - Franchise Group Inc  FRG.O , owner and
operator of retail stores such as The Vitamin Shoppe and Buddy's
Home Furnishings, has entered the race for Kohl's Corp  KSS.N 
with a $9 billion indicative offer, three people familiar with
the matter said. 
    Franchise Group has informed Kohl's it would be willing to
pay $69 per share to acquire the department store retail chain,
subject to due diligence, the sources said.
    Franchise Group's bid is not the highest offer, however.
Luxury department store operator Hudson's Bay Company has
indicated it is willing to pay at least $70 per share for
Kohl's, the sources said. Kohl's shares ended trading on Monday
at $57.24.
    The sources declined to be identified because the
discussions are private.
    Still, Franchise Group's entry in the process gives Kohl's
more options as it explores a sale under pressure from activist
hedge funds. The buyer will have to secure committed financing
to assume Kohl's debt pile, which totaled $6.8 billion at the
end of 2021, including operating leases.
    Franchise Group has a market value of $1.6 billion and
carried long-term debt of $1.9 billion as of the end of
December. Its ability to carry out the deal would largely depend
on the backing of Vintage Capital Management LLC, an investment
firm run by retail investing veteran Brian Kahn. Vintage owned a
12.3% stake in Franchise Group as of December and Kahn was its
chief executive.
    A consortium backed by private equity firm Leonard Green &
Partners LP, which includes Authentic Brands, has also made a
bid for Kohl's, the sources said.
    Private equity firm Sycamore Partners and a group that
includes Acacia Research Corp  ACTG.O , a holding company for
business controlled by activist hedge fund Starboard Value LP,
made offers for Kohl's during the first round of bidding, the
sources said. It is unclear whether these parties remain in the
process. 
    Representatives for Franchise Group, Hudson's Bay, Leonard
Green, Sycamore and Acacia did not respond to requests for
comment. 
    A representative for Kohl's could not be reached for
comment.
    Kohl's, which operates more than 1,100 stores in the United
States, is fighting to fend off a board challenge even as it
considers selling itself. Hedge fund Macellum Advisors GP in
February nominated 10 directors to the company's 14-member
board, arguing it has not done enough to improve its business
and that it should sell itself.
    Last week, Macellum urged the company to be more open about
the sales process and give bidders and shareholders a fuller
financial picture of itself. 
    In response, Kohl's said it is thoughtfully and thoroughly
evaluating proposals. Its investment bankers had held
conversations with more than 20 potential buyers, the company
has disclosed.

 (Reporting by Svea Herbst-Bayliss in Boston; Editing by Bernard
Orr)
 ((svea.herbst@thomsonreuters.com; +617 856 4331; Reuters
Messaging: svea.herbst.thomsonreuters.com@reuters.net))