J.C. Penney Owners Seen Looking To Buy Kohl’s for $8.6 Billion
The huge mall landlords that own department store chain J.C. Penney are reportedly angling to add Kohl's to their portfolio of retailers, competing with other suitors by making an $8.6 billion offer.
Simon Property Group and Brookfield Asset Management are among those vying to acquire Kohl's, the 1,150-store chain based in Menomonee Falls, Wisconsin, according to a story Monday in the New York Post. That's after a CNBC broadcast Friday that said Simon and Brookfield were interested in making an offer for Kohl's.
The new twist is the latest in the saga as several activist shareholder groups — including Macellum Advisors, Sycamore Partners and Oak Street Real Estate Capital — lay seige to Kohl's. Those groups have charged that Kohl's hasn't made store-merchandising enhancements and strategic changes fast enough and that it should consider sale-leaseback deals for its properties. Since then, Toronto-based department store chain Hudson’s Bay has also been reported as interested in Kohl's.
"An offer for Kohl’s by Simon and Brookfield would be an interesting development in the battle for the department store chain," Neil Saunders, managing director of GlobalData, said in a note. "On the surface, the offer would be far more attractive than other bids on the table, if only because Simon and Brookfield would continue to run Kohl’s as a retailer and would bring some of their retail and operational expertise to the chain."
The retailer has taken several actions to appease the dissident groups. In a regulatory filing last week, Kohl's said its financial advisers, which include Goldman Sachs, have "made outbound calls to various financial sponsors, strategic buyers and real-estate focused investors, engaging with over 25 parties."
But pursuing Kohl's would represent a much different strategy for Simon, which in the past has acquired stakes in ailing retailers who were big tenants in its malls and were in danger of going out of business and leaving store vacancies in their wake, said Brandon Svec, director of U.S. retail analytics for CoStar Group. By contrast, Kohl's stores are stand-alone locations or sit mainly in shopping centers, not malls, so their future doesn't necessarily directly affect Simon and Brookfield properties.
Kohl's declined to comment on the New York Post and CNBC reports, and Simon and Brookfield didn't immediately respond to emails from CoStar News seeking a comment.
The offer from Simon and Brookfield is for $68 a share, according to the Post. The plan would be to keep J.C. Penney and Kohl's as separate chains but to slash costs by consolidating some of their operations. On recent earnings calls, David Simon, CEO of Simon Property, praised the progress that J.C. Penney has made under its new CEO, Marc Rosen.
Simon and Brookfield acquired J.C. Penney in May 2020 after the retailer filed for Chapter 11 bankruptcy protection. And in Simon's case, it also has ownership in retail brands such as Nautica, Forever 21, Aéropostale, Lucky Brand, Brooks Brothers and Eddie Bauer — several of which were on the brink of liquidation — through its partnership with Authentic Brands Group in Simon Properties Authentic Retail Concepts, or SPARC.
In an email, Svec said an offer by Simon and Brookfield for Kohl's would be "fascinating because it is such a different situation than when Simon and Brookfield bought JCPenney in an effort to protect their significant exposure to the then-bankrupt retailer."
But "neither owner has significant exposure to Kohl’s and as such, this appears to be a more traditional, or 'boring' acquisition of a competitor to streamline operations and cut costs through efficiencies and economies of scale," according to Svec.
The two department store competitors share a similar shopper demographic, trade areas, products and, of course, Sephora — and as such "I think there is likely some cannibalization that occurs should the two merge," he said. "In that scenario, landlords would need to be worried as the combined entity prunes over-saturated markets. The goal could be to gain additional scale and size for [J.C. Penney] in order to invest more in digital operations and provide an off-ramp for Simon and Brookfield via an eventual public listing of the combined entity."
Saunders also said there are synergies between J.C. Penney and Kohl's that would allow Simon and Brookfield to reduce costs.
"These savings would likely be at the back end, with a focus on operations and logistics," he said. "As the two chains don’t have a great deal of store overlap, any deal would give Simon and Brookfield [a] presence in many locations that JCPenney doesn’t serve."
However, Saunders still described Kohl’s and J.C. Penney as distinct brands.
"There is a limit to how much the two could be merged without sacrificing the integrity of each brand," he said. "This also underlines that creating a bigger business of two struggling department stores would not magically transform the fortunes of either. Indeed, a successful deal would put a lot on the plate of Simon and Brookfield as the turnround of JCPenney is a very long way from being completed, and Kohl’s needs a significant amount of work as it tries to revitalize its fortunes."