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Kohl’s (NYSE:KSS) stock is up 10% today on news that the retailer has entered into “exclusive sale talks” with Franchise Group (NASDAQ:FRG) for a potential takeover worth $8 billion. The deal would see Franchise buy Kohl’s for $60 per share, a 42% premium over the $42.12 closing price on June 6.
This deal is not definite, however. In a news release, Kohl’s noted that any deal would still need the approval of both companies’ boards of directors.
Prior to today’s trading, KSS stock was down 15% year-to-date (YTD). Here’s what investors should know about Kohl’s and the potential takeover moving forward.
What’s Happening With KSS Stock?
Per CNBC, Franchise Group is reportedly working with Oak Street Real Estate Capital “to finance the deal mostly through real estate.” Kohl’s has given Franchise an exclusive negotiating period of three weeks to reach an agreement on the potential acquisition. Franchise will use this time to “finalize due diligence,” secure funds and fully negotiate with Kohl’s.
Kohl’s has been seeking a buyer for some time now. In December 2021, hedge fund Engine Capital urged the company to sell itself. The firm sees a sale as the best way to boost KSS stock’s slumping price. At the time of the note, KSS stock traded at around $48 per share.
Activist hedge fund Macellum Advisors has also pressured Kohl’s to seek a buyer, arguing that executives have mismanaged the company. In February, Kohl’s hired Goldman Sachs (NYSE:GS) to help it field takeover offers.
Why It Matters
Entering into exclusive talks with Franchise Group brings Kohl’s one step closer to being sold — and at a hefty premium to its current price. Investors and analysts see this as a positive development and are now bidding up KSS stock in anticipation of the $60 per share offer. Shares hit a 52-week high of $64.38 in January 2022.
A sale also may be the best solution for Kohl’s amid its deteriorating financial position and depressed share price. In May, the retailer reported that sales fell to $3.72 billion in the first quarter, down from $3.89 billion in the same period last year. The company also slashed its profit and revenue forecasts for 2022. Poor earnings underscored its need to find a buyer.
What’s Next for Kohl’s
The news that Kohl’s and Franchise are in exclusive sale talks is positive. However, investors need to keep in mind that no deal has been reached yet. Negotiations could still break down and neither company’s board has approved a transaction.
Should current talks falter, KSS stock can be expected to fall sharply. Investors may want to wait until an official deal announcement as a result.
On the date of publication, Joel Baglole did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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