Kohl’s takeover rejection ‘sent a chilling message to the market': Macellum Capital CEO

Macellum Capital Management CEO Jonathan Duskin joins Yahoo Finance Live to discuss Kohl's takeover rejection and 'poison pill' move, the company's board of directors, and retail competition.

Video Transcript

BRIAN SOZZI: OK, the underperforming team at Kohl's is digging in their heels against activist investor Macellum, rejecting two recently reported takeout offers and adopting a poison pill. Macellum is returning fire, saying they are disappointed and shocked by Kohl's hasty rejection of buyout interest. Joining us now is Macellum managing partner, Jonathan Duskin. Jonathan, always nice to get some time with you. So you have had the weekend to stew on this one, which really came to a head on Friday afternoon. How do you plan to respond here?

JONATHAN DUSKIN: Well, you know, we put a rather brief note out on Friday I think you just referenced, Brian. And it's very disappointing. This is-- you know, two elements of it. First, that after, really, two scant weeks, they rejected these offers, right? It's hard to imagine they really gave them any attention. It's hard to imagine you could get a nondisclosure agreement signed in a week, no less evaluate two offers.

They didn't give them access to management. I thought they had access to a data room. They really didn't do anything to engage with these potential buyers and are doing everything they can to shut the process down. They obviously could have engaged with the buyers, tried to provide them information to see if a higher price was available. They didn't do any of that. They sent a very chilling message to the market and to other potential buyers by putting out a poison pill.

And this is-- you know, this is a really aggressive tactic. We don't see it that often. And even within the Pantheon of poison pills, this is actually a very aggressive poison pill with a two-tier structure. Gives the board incredible latitude and discretion to determine what takeover offers they will and won't engage, and doesn't allow a possible buyer to engage with management. They have to come with a fully financed offer without the ability to do any diligence.

So it's really, really very disappointing. Speaks to what we've been saying about this board being very self-serving, very entrenched. Obviously looking out for their own seats and not really looking out for the shareholder, who they, obviously, represent. And that's their fiduciary, and that's who they work for. And I think they're forgetting that.

BRIAN SOZZI: And you are a shareholder, 5% holder over at Macellum. And you are seen as a constructive group. I remember following closely your campaign at Bed, Bath & Beyond, which drove-- unlocked, I would say, a lot of value here. How do you put pressure on this company's board to ultimately do the right thing?

JONATHAN DUSKIN: Well, as you might remember, Brian, we nominated a slate last year, and we settled on adding two directors from our slate and then one mutually agreed upon. And as we've written in a couple of our letters now, we most likely are going to have to run another slate here. This board doesn't appear to be working on shareholders' behalf. And it's really troubling to us. And we'll continue to put pressure on the board by nominating another slate. And we'll give shareholders an opportunity to weigh in.

You know, another thing I would add about the poison pill that was particularly disheartening was they didn't even put it to a shareholder vote. Obviously, they have an AGM coming up relatively soon, and this is something that, more often than not, shareholders vote on, whether they want a pill. And the board waived that opportunity and bypassed that opportunity, really trying to keep control of the boardroom and chill this process to, I think, preserve their seats.

BRIAN SOZZI: Jonathan, do you think Amazon has been kicking the tires here on Kohl's?

JONATHAN DUSKIN: Look, it's-- I don't know for a fact. It's interesting to think about Amazon's move into brick and mortar retailing. You know, they announced that earlier in January. And it was one article that actually compared Amazon to Kohl's, saying if Amazon gets into apparel retailing, they'll look a lot like Kohl's. We know that Amazon has the return kiosks in Kohl's, so there's already a partnership. So given Amazon's desire to get into brick and mortar retailing, get into apparel, the struggles they've had in their own apparel offering, the relationship they already have with Amazon, it seems to make some sense.

JARED BLIKRE: And Jonathan, just speaking and thinking a little bit more broadly here, if I'm an investor in a company-- it doesn't have to be Kohl's, but using Kohl's as an example, you talked about the poison pill and how the entrenched management-- well, they're entrenched. If I'm an investor in a company, and I think the company should change, what should I look for in terms of the company's structure and also their operating agreements, their bylaws, just to make sure that there is an opportunity for change, instead of just carrying out the entrenched interests here?

JONATHAN DUSKIN: Well, really, the mechanism for change is a contested election. Interested parties like ourselves, large shareholders running their own slate of directors and trying to bring change, bring retail expertise into the boardroom, bring experience that we think is more relevant than this current board has into the boardroom. And then I think the board can operate much more effectively.

And particularly if there's a shareholder in the room, we think that that makes a big difference for boards when there's somebody that actually owns a large stake in the company that sits in the boardroom and really helps focus everybody on generating shareholder returns and creating value for shareholders.

So for us, that's really the mechanism we use. As Brian points out, we've done it quite a bit in the past. So I think interested shareholders should watch the evolution of this contested election and to see how things progress. And hopefully, I believe most shareholders will be supportive of our efforts. I think everybody is very frustrated with Kohl's and the stock price and their performance. And they're probably going to want to see some change here.

BRIAN SOZZI: Jonathan, one of the reported bids for Kohl's came out of Starboard, I believe $9 billion. So now that they have-- now that Kohl's has adopted a poison pill, is that deal off the table? Are the Starboard folks potentially back working some numbers here and may come back for an offer, or that deal is just up in smoke now because of the poison pill?

JONATHAN DUSKIN: I doubt it's up in smoke. You know, as restrictive as this poison pill is-- and again, I think it's unusual even by poison pill standards-- it's still a stop, look, and listen mechanism, right? The board ultimately can't thwart the shareholders achieving value. And I don't know what Starboard's doing. I don't know what their plans are. But I'd be surprised if a company who's very well known for being aggressive fighters-- Darden is one of the greatest examples, I think, of their past campaigns-- I'd be surprised if they're just going to pack up and go home.

But again, I don't know what's on Starboard's mind. And the board at some point is going to have to acquiesce. We think there's interest far beyond the two buyers that have been mentioned. And we think this is an asset that can generate a lot of interest in private equity and with strategics. And we really do think the board is ultimately going to have to run a process, even though they've neglected to do so at this juncture. We do think they'll ultimately have to acquiesce and run a real process.

BRIAN SOZZI: What I don't understand-- and I used to be an analyst, Jonathan, covering retailers, and at one point, I did cover Kohl's. What I don't understand here is the stock price has done squat for a decade. Margins under pressure for a decade. Is there just a cultural problem inside Kohl's where they won't even entertain this notion of splitting off e-commerce from retail or selling the company or spinning off real estate assets? Is there something wrong in this company's DNA?

JONATHAN DUSKIN: It's a fair question. I guess anybody looking from the outside in is going to scratch your head and wonder the same thing. By the way, Brian, it's not one decade. It's two decades. Sadly, the price today--

BRIAN SOZZI: My apologies.

JONATHAN DUSKIN: --where it was in 2002. But, you know, we see this in a lot of campaigns that we run. And we see this in a lot of troubled companies. There's a complacent mentality of the-- on the board, and that sometimes permeates the organization. And we think with the right board, the right expertise, the right retail knowledge, the right retail experts in the room, this can be an incredible company. It can be a great company.

Kohl's used to be in-- when you covered the stock back in the 2000s, this was a company that outperformed all other forms of retail. And sadly, for whatever reason, they've become complacent. They haven't been able to find the right formula of the merchandise assortment or price value equation that is resonating with customers. But we really think it can. There's no reason it can't. There's been so many examples of other great turnarounds in retail. And we think Kohl's could be the next one. And we're really poised to roll up our sleeves and get involved and fix this company and create meaningful shareholder value.

JARED BLIKRE: And we got time for one more here, Jonathan. I was looking at that sideways price action going back to their IPO days almost in the last 20 years-- dead money. What's the fair-- what's a number that you have in your head that you would like for this company?

JONATHAN DUSKIN: It's a bit of a tricky question, because I think part of the answer is, who's running the business? Who's on the board? What does the structure look like? So I think we wrote in one of our letters, we think it's $100 stock. But I don't think that can be achieved in the current board management configuration. I think change has to occur for that to be realized. And I think short of that, I think we said this very-- in one of our letters very specifically. It's either change a significant portion of the board. And let's get some real retail experts in there with a vision to fix this or sell the company.

Because if the board isn't changed and isn't refreshed and isn't reconstituted, we're going to be back to the status quo. And we're going to get the same results we've gotten for two decades. And in that set of scenario, set of circumstances, I think the only way for shareholders to really achieve value is through a sale. Give it to somebody else and let somebody else fix this business because this board is not capable of doing that, hasn't proven to be capable of doing that. So absent material change in the boardroom, I do think the business needs to be sold to-- for shareholders to realize any reasonable performance.

BRIAN SOZZI: Bizarro situation, indeed. Look, I'm glad we were able to reconnect on this one. Macellum managing partner Jonathan Duskin, we'll talk to you soon.