The Activist Path to Battle With Kohl’s

The battle for Kohl’s Corp. has been brewing behind the scenes for months — stirring up technical questions about a change in control and bringing apparel veteran Peter Boneparth, a director at the retailer, into the fray. 

A Securities and Exchange Commission filing by the activists — Macellum Advisors, Ancora Holdings Inc., Legion Partners Asset Management and 4010 Capital — detailed the investors’ approach. 

Macellum appears to have been first on the scene, holding regular calls with the company starting in 2015, discussing quarterly results, operations and strategy. Then last year, 4010, Legion and Ancora all started speaking to the company as well. Interests converged and the four investors gelled into a group in October, entering into an agreement to “work together to enhance shareholder value, including to nominate directors to the board and solicit proxies for their election.” 

By Dec. 11, representatives of Legion and 4010 had a virtual meeting with Kohl’s chief executive officer Michelle Gass and indicated they wanted to speak with the board. 

The investors aired their worries to the board in a Dec. 23 letter, leading to a virtual sitdown on Jan. 6 with Boneparth, chair of the board’s governance and nominating committee, and Stephanie Streeter, who is chair of the audit committee and former CEO of of glass tableware producer Libbey Inc. 

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During the meeting, the investors voiced “their concern with the company’s declining returns on invested capital, stagnant sales and the lowest operating margin in a decade.”

The next week, the activists privately nominated Marjorie L. Bowen, James T. Corcoran, David A. Duplantis, Jonathan Duskin, Margaret L. Jenkins, Jeffrey A. Kantor, Thomas A. Kingsbury, Margenett Moore-Roberts and Cynthia S. Murray for election to the board — what would be an effective takeover of the board if shareholders voted them in. 

That led to a confidentiality agreement between the two sides and a Feb. 5 meeting with Boneparth, Gass and others. 

When it came time for the final wheeling and dealing, it was Boneparth who had a call with Duskin, CEO of Macellum. 

Boneparth offered up two seats on the board and Duskin reiterated that “two seats wasn’t enough change” and Boneparth “indicated he would let shareholders weigh in.”

Boneparth is not one to back down from a fight. As CEO of Jones Apparel Group, he famously feuded with Ralph Lauren Corp. over a licensed business, launching a kind of war in the better sportswear business between the two companies. 

The back and forth might lead to a call for change, but specifically not a change in control. 

On Valentine’s Day, Macellum noted that if they did indeed win a majority of the company’s board seats, it could trigger payments tied to change-in-control provisions. 

The investor group asked that the company deem the insurgent nominees as “continuing directors” to avoid a change in control “to maintain a level playing field, and to allow shareholders to make their voting decisions based solely on the merits.” 

The company is reviewing the request. It is a set of circumstances that has cropped up in other activist campaigns, including Macellum’s push at Bed Bath & Beyond. 

Count that as just one front in a multipronged battle that, if not settled or dropped, will lead to a showdown at the Kohl’s annual meeting this spring and potentially big changes at the company.

While many broadline retailers were struggling even before the pandemic, the activists argue Kohl’s could have done better.

“The investor group estimates that from 2015 to 2019, key competitors of the company (including Kmart/Sears, Bon-Ton, Macy’s, J.C. Penney and Dillard’s) lost more than $12 billion in sales that could have accrued to Kohl’s,” the activists said in the filing. “Yet, over that same period, Kohl’s lost nearly $300 million in sales. The company’s inability to gain market share despite spending approximately $1 billion a year on marketing and hundreds of millions of dollars on e-commerce fulfillment capabilities is troubling.”

Gass, in a message to employees that was separately filed with the SEC, said the company was moving forward with “great confidence in our current performance and the plans we have in place for the next chapter of Kohl’s.”

“We value the opinions of all shareholders and maintain an ongoing dialogue to hear their views and to make sure they understand our long-term strategy and continued commitment to create shareholder value,” Gass said. “Please know that it is relatively common for certain investors to take a position like this with public companies.”

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