Franchise Group is considering lowering Kohl’s bid closer to $ 50 per share from $ 60

People walk by on June 7, 2022 at an entrance of a Kohl’s department store in Doral, Florida. Kohl’s announced that it has entered into exclusive negotiations with Franchise Group, which proposes to buy the retailer for $ 60 per share.

Joe Raedle | Getty Images

Retail holding company Franchise Group is considering lowering its bid for Kohl’s closer to $ 50 per share of about $ 60, according to a person familiar with the deal.

Kohl’s shares fell more than 8% on Wednesday afternoon to about $ 39 per share. They trade as low as $ 34.64 at the end of May.

Franchise Group, owner of The Vitamin Shoppe and other retailers, is actively considering whether buying Kohl’s is the best use of Franchise Group’s capital, said the person, who asked to remain anonymous because the talks were private and are persistent. The company is growing worried that the environment for certain retailers here could become more difficult, especially as the US enters a recession, the person said.

Franchise Group has drawn up financing with lenders, the person added. But the company, run by Chief Executive Officer Brian Kahn, is now expecting a lower price, 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 for profits because it cancels orders and marks unwanted merchandise ahead of the busy seasons for returning to school and holiday shops. Analysts expect that many retailers will have to take a similar hit, and it could be a bigger hit for those who are not as successful at moving shelf products.

Earlier this month, Franchise Group made a bid of $ 60 per share to acquire Kohl’s worth about $ 8 billion. The two companies then entered into an exclusive three-week window in which they could establish all due diligence and final financing arrangements. That ends this weekend.

The off-mall department store chain was first called upon to consider a sale as another alternative to increase its share price in early December 2021 through 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 CEO Jonathan Duskin claimed that directors “materially mismanaged the company”. He also said Kohl’s had enough potential to unlock with her real estate.

Earlier this year, Kohl’s received a $ 64 share offer from Starboard-backed Acacia Research, but considered the bid too low.

In mid-May, Kohl’s announced that its sales for the three-month period ending April 30 fell to $ 3.72 billion from $ 3.89 billion in 2021.

The retailer reduced its profit and revenue forecasts for the entire fiscal year, which also tarnished the image for a potential deal.

Representatives for Kohl’s and Franchise Group did not immediately respond to CNBC’s requests for comment.

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