People walk near the entrance to a Kohl’s department store on June 7, 2022 in Doral, Florida. Kohl’s announced that it has entered into exclusive negotiations with Franchise Group, which proposes to buy the dealer for $ 60 per share.
Joe Raedle | Getty pictures
The retail holding company Franchise Group is considering lowering the bid for Kohl’s to almost 50 dollars per share from around 60 dollars, according to a person who is familiar with the agreement negotiations.
Kohl’s shares fell more than 8% on Wednesday afternoon to about $ 39 per share. They traded as low as $ 34.64 at the end of May.
Franchise Group, owner of The Vitamin Shoppe and other retailers, is actively considering buying Kohl’s is the best use of Franchise Group’s capital, said the person who asked to remain anonymous since the talks are private and ongoing. The company is becoming increasingly concerned that the environment for some retailers may become darker from here, especially if the US were to enter a recession, the person said.
Franchise Group has set up financing with lenders, the person added. But the company, run by CEO Brian Kahn, weighs a lower price now as retailers generally struggle with inflated inventory and higher prices.
Big-box retailer Target said earlier this month that it will take a short-term hit on profits as it cancels orders and marks down unwanted items ahead of the busy back-to-school and Christmas shopping season. Analysts expect that many retailers will have to take a similar blow, and it may be a bigger blow for those who are not as successful in moving products off the shelves.
Earlier this month, the Franchise Group proposed a bid of $ 60 per share to buy Kohl’s worth about $ 8 billion. The two companies then entered into an exclusive three-week window where they can confirm any due diligence and final financing arrangements. It’s ending this weekend.
The department store chain outside the mall was first encouraged to consider a sale or other alternative to raise its stock price in early December 2021 by New York-based hedge fund Engine Capital. At the time, Kohl’s shares were trading at around $ 48.45.
Then, in mid-January, activist hedge fund Macellum Advisors pushed Kohl’s to consider a sale. Macellum’s CEO, Jonathan Duskin, claimed that managers were “significantly mismanaged” by the business. He also said that Kohl’s had a lot of potential left to unlock with his property.
Earlier this year, Kohl’s received a $ 64-per-share offer from Starboard-backed Acacia Research, but considered the bid too low.
In mid-May, Kohl’s reported that sales for the three-month period ending April 30 fell to $ 3.72 billion from $ 3.89 billion in 2021.
The dealer cut his profit and revenue forecasts for the entire financial year, which also made the picture for a potential deal.
Representatives of Kohl’s and the Franchise Group did not immediately respond to CNBC’s requests for comment.