Kathleen Gallagher: Activist investors targeting Kohl's are playing a tired, old, greedy game that is unlikely to succeed.

In the middle of this slugfest with activist investors -- with 20 potential acquirers talking to its investment banker and five offers to buy the company on the table -- there’s only one reason for Kohl’s Corp. to hold its annual meeting on Wednesday:

To make the point it doesn’t plan to sell.

And to tell the truth, that makes sense. What Kohl’s directors must know is that lead agitator Macellum Advisors, which owns about 5% of Kohl’s stock, is applying a worn-out strategy that was perfect during the last decade or two but isn’t now.

In other words, the jig is up.

A key ingredient for activist investors like Macellum is cheap money. And it’s disappearing fast.

Years of attacks, using an old strategy

These activists have for years been attacking retailers like Kohl’s and Spartan Nash, the Michigan-based grocery chain also in Macellum’s sights, that have ample real estate holdings and challenges in the Amazon-drenched competitive landscape. With a rallying cry of producing more shareholder value, the activists push sale leaseback transactions, in which retailers sell their real estate -- Kohl’s has an estimated $8 billion worth and Spartan Nash, an estimated $1 billion worth -- and lease back their stores from the buyers.

The downside is the retailers have to start paying significantly more rent -- essentially incurring debt by adding a lot of store leases to their balance sheets.

That’s not the activists’ problem though. The real estate sales produce the special dividend they’ve been demanding -- which, by the way, is a very inefficient way of providing capital to shareholders from a tax perspective. And when the next downturn rolls around, when business slows and the stores are overwhelmed by their rent payments, the activists are long gone.

The strategy is neither brilliant nor new. It was deployed with Sears as it was failing — capture the hidden value of forgotten fixed assets as the operating business deflates. Conveniently, the activists never mention the detritus they left behind at Sear’s, JC Penny and other victims.

“It’s an issue of perhaps mismatched priorities,” says David Swartz, equity analyst at Morningstar Inc. “I don’t think monetizing the real estate is a priority for Kohl’s right now, but it is unfortunately right now a priority for Wall Street.”

I have to chuckle about the irony here. Macellum has singled out John Schlifske, Northwestern Mutual’s CEO, as one of Kohl’s weakest board members. Schlifske ran some of the insurer’s investment operations before taking the top job, so he clearly understands the Wall Street activists’ tools: Real estate and interest rates.

End of cheap money helps Kohl's

What Schlifske and his fellow board members must see is the end of the cheap money era. The Federal Reserve, in tune with central banks around the globe, raised interest rates by half a percent earlier this week. And it telegraphed there are many more rate hikes in store.

When interest rates go up, real estate values go down. The only way all these potential buyers who are offering $8 billion or $9 billion to buy Kohl’s can pull it off is to use Kohl’s real estate to secure their loans.

As real estate values decline, a strategy that relies on cheap money won’t get it done. By the time the deal got to its closing in three or four months, the acquirer likely wouldn’t be able to buy at the price it’s offering now. The whole game won’t play.

In fact, there’s a good argument to be made that Kohl’s board is wasting its time even thinking about the activists’ demands.

When Macellum came at Kohl’s a year ago, the retailer compromised, agreeing to put three of the activist’s proposed candidates on its board. This year, when Macellum boomeranged back, Kohl’s wasn’t so amenable.

The chain is aggressively defending itself and emphasizing its strategic plan, which includes continuing to expand Sephora shops into 850 stores, focusing on winning categories like athletic wear, and opening 100 smaller stores in smaller markets.

Jonathan Duskin, Macellum’s lead agitator, has criticized Kohl’s CEO Michelle Gass - he likes to call her Michelle - saying her plan hasn’t changed over the last year. The funny thing is that Duskin -- or should I call him Jonathan -- hasn’t changed his plan to use Kohl’s real estate to get himself a special dividend either.

It’s an impasse many think Macellum will win. Swartz, of Morningstar, says he expects Kohl’s to be sold for $70 to $75 a share.

Amazon faltering

Maybe, but along with rising rates, there’s another factor to consider: Mighty Amazon has peaked.

Don’t just go by Amazon’s slumping stock price -- it has declined by about 25% this year.

Think about Amazon Prime. It depends on cheap credit, energy and labor -- and they’re all getting more expensive. Amazon’s workers are trying to unionize for higher wages. In April, Amazon slapped a 5% inflation and fuel surcharge on its sellers and posted its first quarterly loss since 2015. None of this is good for its distribution business model.

Perhaps it will turn out that buying something at an actual store makes sense again. Domino’s is running a promotion giving customers a $3 coupon for coming in and picking up their pizza. What a novel idea.

If Kohl’s successfully fends off the activists and beats back potential acquirers, it may well survive and prosper because it won’t have debt on its balance sheet and can find opportunities in Amazon’s struggles.

Kohls is not failing. Putting debt on the balance to “capture hidden value” only works if you need the money for other purposes. The likely result of the activists’ “brilliance” would be to destroy Kohl’s for the sake of a special dividend they’d grab as they were running out the door.

Shareholders shouldn’t fall for this outdated trick. Given what’s happening in the economy, the activists’ strategies are amateurish and unlikely to succeed.

Read all of Kathleen Gallagher's columns here.

Kathleen Gallagher was a business reporter at the Milwaukee Journal Sentinel and the Milwaukee Sentinel for 23 years. She was one of two reporters on the team that won a 2011 Pulitzer Prize for the One in a Billion series. Gallagher is now executive director of 5 Lakes Institute, a nonprofit working to grow the Great Lakes region's high technology entrepreneurial economy and culture. She can be reached at Kathleen@5lakesinstitute.org.

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This article originally appeared on Milwaukee Journal Sentinel: Gallagher: Activists targeting Kohl's playing a tired old Wall St game