Kohl's jumps after entering exclusive talks for $60/share sale to Franchise Group

Jun. 06, 2022 8:39 PM ETKohl's Corporation (KSS), FRGSPG, BAM, BAM.A:CABy: Joshua Fineman, SA News Editor29 Comments

Kohl"s store front

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Kohl's (NYSE:KSS) soared 14% in after hours trading after entering exclusive talks with Franchise Group (NASDAQ:FRG) for a potential $60/share sale of the department store chain.

The Kohl's board announced that following the receipt of final proposals it has entered exclusive negotiations with Franchise Group (FRG) for a period of three weeks in relation to FRG’s proposal to acquire the company, according to a statement. During the period FRG and its financing partners can finalize due diligence and financing arrangements to complete the negotiation of binding agreement.

Franchise Group (FRG) was said to be willing to pay as much as $69/share for Kohl's (KSS) in the early rounds of bidding, according to a Reuters report in April. Franchise Group has a market cap of $1.5 billion.

The exclusive talks come after the WSJ reported Thursday that Kohl's received two bids in its sales process. Private equity firm Sycamore Partners offered in the mid-$50s/share for Kohl's, while Franchise Group (FRG) offered around $60/share.

The deal remains subject to approvals of the board of directors of both companies and there's no assurance that any agreement will be reached, according to the statement.

Franchise Group (FRG), the owner and franchiser of retail stores including The Vitamin Shoppe and Buddy’s Home Furnishings, said in a separate statement that it intends to contribute approximately $1 billion of capital to the Kohl's deal, all of which is expected to be funded through an increase in the size of its secured debt facilities. A majority of the financing for the transaction is expected to be provided on the basis of the real estate assets of Kohl’s (KSS).

A potential deal with Franchise Group (FRG) comes after reports that several other bidders including Hudson's Bay and a consortium of Simon Property (SPG) and Brookfield Asset Management (BAM) had exited the bidding process after Kohl's reported disappointing Q1 results and financing for a deal may have been more difficult due to the current market volatility.

A possible sale would be a win for activist Macellum, which has been pushing for the company to sell itself for months and was dealt a blow last month when Kohl's holders rejected all of the investor's 10 board nominees.

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