Kohl’s Negotiating to Sell to Vitamin Shoppe Owner

Kohl’s Corp. has entered negotiations to sell the department store chain to Franchise Group (FRG), parent company of The Vitamin Shoppe and Pet Supplies Plus.

Kohl’s Board of Directors, which avoided an overhaul last month, entered exclusive negotiations for three weeks over FRG’s proposal to acquire the Kohl’s for $60.00 per share in cash, which values Kohl’s at roughly $8 billion. FRG’s interest was first reported back in April.

Kohl’s said the period will allow FRG and its financing partners to finalize due diligence and financing arrangements, and for the parties to complete the negotiation of binding documentation. Franchise Group intends to contribute approximately $1 billion of capital to the transaction, all of which is expected to be funded through a corresponding increase in the size of its secured debt facilities. A majority of the financing for the transaction is anticipated to be provided on the basis of the real estate assets of Kohl’s Corporation. Other than the increased secured debt facilities of Franchise Group, none of the financing for the transaction is expected to be recourse to Franchise Group.

FRG also owns American Freight, Badcock Home Furniture & more, Buddy’s Home Furnishings and Sylvan Learning.

While the transaction remains subject to approvals of the boards of both companies, the department store’s stock jumped 9.5% on the news and rose 1.5% on a report that the sale to Franchise Group is "moving along."

Kohl’s has received multiple preliminary indications of interest to purchase the department store chain since the beginning of the year. Its board authorized Goldman Sachs to coordinate with select bidders to assist with further due diligence, and, as previously announced, the Finance Committee of the Board is leading the ongoing review of any expressions of interest.

Kohl’s has had a rough go as it considers a sale. The department store retailer posted a disappointing first quarter, announced the departure of executives, and minority shareholder Macellum Advisors announced it’s considering legal action against the board. Previously, Kohl’s shareholders voted to reelect all thirteen of its current board directors, despite activist group Macellum’s bid to overhaul the board. Kohl’s announced investors voted against all 10 directors nominated by Macellum, which sought to take control of Kohl’s board and owns roughly 5% of the retailer's shares. Macellum Advisors issued a statement in which it said it’s considering legal action against the board for waiting until after the retailer’s annual shareholder meeting to disclose its first-quarter earnings miss, reduced full-year guidance and the departure of two executives.

“The year has started out below our expectations,” CEO Michelle Gass said in a statement last month.

“We remain committed to our long-term strategy and are encouraged that our updated store experience, with Sephora at Kohl’s shops, delivered positive comparable store sales across these 200 locations for the quarter. We continue to expect our business to improve as the year progresses, with growth in the second half as we benefit from the roll out of 400 additional Sephora stores, enhanced loyalty rewards, and further investment in our stores.”