If Someone Wants to Pay $60 a Share, Why is Kohl’s Stock Stuck at $45?

Now, I don’t pretend to be the greatest Wall Street investor of all time, but when I see reports that the Franchise Group – a poorly-named investment company that owns assorted retail brands – is in talks with Kohl’s to buy it for $60 a share, yet the stock continues to trade in the mid-$40s, it makes me wonder whether a deal will actually happen.

It certainly wouldn’t be the first time that something was supposed to happen with Kohl’s that ended up not coming to fruition. Probably won’t be the last time either.

Kohl’s has seemingly been in play longer than the Baltimore Orioles have been in last place. For several years now the department store chain (department store being a rather broad term these days) has been the subject of assorted takeovers, break-ups, privatizations and various and sundry other financial manipulations. Through it all, it has stayed in one place…much like its financial results as well as its stock price, both of which have been lackluster at best.

It’s hard to say exactly what’s fundamentally wrong with Kohl’s. Its current management has done some interesting strategic moves, most notably bringing in Sephora shop-in-shops and hooking up with Amazon for return services. It’s announced some other moves, but frankly many seemed to be more about gaining headlines than battling retail headwinds.

On the negative side, Kohl’s failed to gain appreciable market share during the long, long slide of its primary competitor JCPenney the past few years. It is a store positioned for the mid-market, a sector that is shrinking by the nanosecond. Some of its stores look tired and its inconsistent branding and marketing programs haven’t created much continuity on the merchandising side as one would like to see.

In fact, it appears it’s spent much of the past few years fighting off the barbarians at the gate. Wave after wave of attackers have moved in, threatening all kinds of bubble-bubble-toil-and-trouble. As many as two dozen tire-kickers were rumored to be snooping around, with Franchise Group apparently getting the first dance.

Franchise – again, do something about that name, will ‘ya – owns a few retailers, including The Vitamin Shoppe as well as holdings in furniture (Badcock Home, American Freight) and pet (Pet Supplies Plus, Wag N Wash), but Kohl’s would certainly be its most high-profile acquisition. Its website says it focuses on franchised business models but adds its approach  “enhances the growth and profitability of businesses with needed low-cost capital and a sound strategy.” Its management, as outlined on its site, leans heavily on the financial investment side although there is some retail experience sprinkled throughout. Certainly nobody on its profiled team has ever been involved in a retail business of the size and scale of Kohl’s.

So is the seemingly poor-fit with Franchise Group the reason the Kohl’s stock hasn’t ticked up closer to the $60 target range? Usually when Wall Street smells a deal they bid the stock up to just below the purchasing threshold. Not this time.

One has to wonder why, especially when you consider there seems to be a waiting list of other potential suitors out there, standing in line just in case this deal doesn’t happen. It really does look like somebody is going to be handed the keys to the front door in Menomonee Falls sooner or later…even if Wall Street is underwhelmed so far. Then again, this is Kohl’s. It’s defied expectations for years and it could very well do it again.

The irony of course is that for a retailer that seems to offer more deals to its shoppers than just about any other store in modern retail history, this is one deal that appears to be far from done.  

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