Kohl’s is in Exclusive Talks with New Suitor, Franchise Group

$60 a Share Offer

Franchise Group (FRG) is a holding company that owns brands like The Vitamin Shoppe and Sylvan Learning. Now the company is looking to build out its retail franchise portfolio as it makes a play for Kohl’s (KSS). During exclusive talks, Franchise Group has reportedly offered to acquire the beleaguered retailer at $60 a share. At this price, Kohl’s valuation would be $8 billion.

Franchise Group was established in 2019 when Liberty Tax Service and home furnishing store Buddy’s merged. It is run by Brian Kahn who has a private equity background.

The Real Estate Factor

Some market observers have noted the department store purchase includes Kohl’s vast property holdings. As of January 2022, Kohl’s real estate holdings were valued at about $8 billion, according to a company filing. That’s significant given the entire deal has been valued at exactly the same price.

But the expectation is this transaction will be structured as a sale-leaseback. That would effectively eliminate the real estate play for Franchise Group, as private equity partner Oak Street is helping to arrange financing. Franchise Group would then owe rent on the properties.

Bye Bye Sephora?

There is also the question of what might happen to the department store if it comes under the control of Franchise Group. The deal would represent the company’s largest acquisition by a significant margin. Its current portfolio of companies produced $3.3 billion in sales last year, less than 20% of Kohl’s $19.4 billion in annual revenues reported in January.

Company executives say their focus will be on operational efficiencies supported by a strong management team. Still, industry analysts wonder about the possibility of store closures or changes to the store’s relationship with Sephora and Amazon (AMZN).

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