Kohl's activist group reduces its board nominees and forgoes pursuit of management control
In a recent development, an activist investor group, including Macellum Advisors, Ancora Holdings, Legion Partners Asset Management, and 4010 Capital, have raised concerns about Kohl's financial decisions. The group filed a revised proxy statement with the Securities and Exchange Commission on March 11, 2021.
The investors have criticized Kohl's for taking on $600 million in unsecured debt due in 2025, at a high interest rate of 9.5%. This debt was taken on in April, a move that the investor group claims was unnecessary, given "significant additional sources of liquidity at the time."
Kohl's detailed meetings between CEO Michelle Gass and other board members and representatives of the activist group on March 9. However, the investor group's revised slate of nominees would not have effectively taken control, as opposed to their original slate of nine new members nominated in January.
The investor group has questioned the necessity of Kohl's borrowing the money, calling it "ill-conceived" and "very troubling." They have also criticized Kohl's earnings results, stating that the "Board seems to be content performing just slightly better than the worst companies in retail."
The activist group is recommending changes in merchandising, inventory management, customer engagement, expense rationalization, and potential sale leaseback transactions to unlock $7-8 billion of real estate value.
Kohl's faces challenges in the retail sector, which could lead activist investors to push for strategic changes. Low investor confidence might prompt activists to advocate for governance or operational reforms. The investor group holds a 9.5% stake in Kohl's and is pushing for change at the company.
The latest earnings report showed sales and margin declines in the fourth quarter and full year, with a $262 million operating loss for the year, from $1 billion operating income in 2019. Kohl's has named a new independent director, Robbin Mitchell, on February 17.
In response to the investors' criticisms, Kohl's CEO Michelle Gass shared some of the activists' concerns but disagreed with a board takeover and other proposals. Kohl's has also publicly pushed back against the activist group's demands, stating that their proposals threaten to disrupt Kohl's business momentum and that some of their suggestions are already "well underway."
The activist group has published a press release criticizing Kohl's for its language and approach to their demands. Kohl's had a scathing response to the activists' latest salvo, stating that their proposals could harm the company's long-term prospects.
As the situation unfolds, it will be interesting to see how Kohl's responds to the activist investors' criticisms and whether any changes will be made to the company's strategy and board composition.
- The investors, including Macellum Advisors, Ancora Holdings, Legion Partners Asset Management, and 4010 Capital, have expressed concerns about Kohl's financial decisions and raised a revised proxy statement regarding the matter.
- The investors have criticized Kohl's for taking on $600 million in unsecured debt, citing it as an ill-conceived move and very troubling, given the significant additional sources of liquidity at the time.
- The investor group has recommended changes in merchandising, inventory management, customer engagement, expense rationalization, and potential sale leaseback transactions to unlock $7-8 billion of real estate value.
- The latest earnings report showed sales and margin declines in the fourth quarter and full year, with a $262 million operating loss for the year, from $1 billion operating income in 2019.
- Low investor confidence could prompt activists to push for governance or operational reforms in the business sector, possibly impacting personal-finance and investing.
- The activists are pushing for change at Kohl's, advocating for changes in its strategy and potentially its board composition, as the situation unfolds in the retail sector, where Kohl's faces several challenges.
