On Dec. 6, the board of directors of Kohl's (KSS) received a letter from “long-term shareholder” Engine Capital. The key takeaways from the shareholder letter are the suggestions that Kohl's should sell its e-commerce business, as well as the entire company. Pre-market this morning, KSS shares gained 3.55% in value.
Value for Shareholders Falls Short
According to Engine Capital’s letter, while Kohl’s “has a unique retail footprint relative to many mall-based retailers,” along with an increasing e-commerce presence, a strong loyalty program, and valuable real estate holdings, these assets “continue to fail to catalyze meaningful value for shareholders.”
Strategic Alternatives
Engine Capital believes that even “the most patient long-term shareholders cannot be expected to endure the punishing underperformance and perpetual value disconnect seen at Kohl’s.” The investors urge Kohl’s board to “publicly commit to conducting a full review of strategic alternatives.”
Shareholder Activism
The Engine Capital letter suggests the following as a path forward for the retailer’s future business:
1. Separate the legacy retail business from the e-commerce business, which would then theoretically allow the market to “assign the proper valuation multiple to each business.” Engine Capital believes “a standalone Kohl’s e-commerce business could be conservatively valued at $12.4 billion or more…”
2. Engine Capital would also like the firm to “run a market test to see how much well-capitalized financial sponsors would pay for the entire Company.” Engine Capital believes there are financial sponsors out there “able to pay a significant premium of 50%,” which would add up to at least $75 per share.
