Activist Engine Capital urges Kohl’s to consider online sale or split

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People shop at Kohl’s department store amid the coronavirus outbreak on September 5, 2020 in San Francisco, California.

Liu Guanguan | China Information Service | Getty Images

An activist is pressuring Kohl’s to consider a sale or separation of its online business, following a similar move by department store chain Saks Fifth Avenue.

New York-based hedge fund Engine Capital wants Kohl’s to explore both alternatives in an attempt to increase its share price, he said in a letter to Kohl’s board that was released publicly on Monday. Engine Capital has an approximate 1% stake in Kohl’s.

Kohl’s shares closed at $ 48.45 on Friday, roughly where they were trading a decade ago, giving Kohl’s a market value of around $ 7.3 billion, lower than that from Macy’s but more than that from Nordstrom. Kohl’s stock is up about 19% year-to-date, underperforming the S&P 500. Its shares closed up 5.4% on Monday.

Engine Capital said in its letter that assuming Kohl’s generates approximately $ 6.2 billion in online revenue, Kohl’s digital business alone would be worth $ 12.4 billion.

Engine Capital also said it believes there are private equity firms that will pay the retailer at least $ 75 per share. And the investor group said discussions with potential buyers suggest they may further monetize Kohl’s real estate.

“Kohl’s has a unique business footprint compared to many retailers in shopping centers as well as a growing presence in e-commerce,” said Engine Capital.

A spokeswoman for Kohl’s said the retailer’s board and management team are constantly reviewing opportunities to maximize shareholder value.

“Our strong performance this year demonstrates that our strategy is gaining ground and delivering results,” the spokesperson said in an emailed statement. “We value the ongoing dialogue we have with our shareholders and appreciate their contribution and their perspectives.”

The talks come as investors see the value in owning part of a faster growing e-commerce division with more tech-savvy operations. Saks’ digital arm reportedly now aims to go public with a valuation of 6 billion dollars, or about six times the income. It had a valuation of $ 2 billion as recently as March.

Meanwhile, Macy’s has been urged by activist group Jana Partners to separate its e-commerce operations from its stores, in hopes of achieving greater valuation. Macy’s has since hired the consulting firm AlixPartners to review its business structure.

“We also recognize the significant value the market places on pure e-commerce businesses,” said Jeff Gennette, CEO of Macy’s, on a recent earnings conference call. “And as we take a look at the landscape today, we are undertaking additional analysis that may help inform our long-term strategy to unlock more value for Macy’s.”

Kohl’s has had another recent clash with activist investors who have raised doubts about the direction of the company and tried to take control of its board of directors. The group – Macellum Advisors, Ancora Holdings, Legion Partners Asset Management and 4010 Capital – reached a deal with the retailer in April and added a few independent investor-backed directors to its board.

In 2014, Engine Capital pressured Ann, owner of fashion brands Ann Taylor and Loft, to sell herself. The company did so the following year.

Read the full letter from Engine Capital here.

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