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Kohl's pressured by activist investor to separate online business

CNBC’s Leslie Picker reports on Engine Capital’s push for Kohl’s to sell or separate its online business. For access to live and exclusive video from CNBC subscribe to CNBC PRO: https://cnb.cx/2NGeIvi 

An activist is pressuring Kohl’s to consider either a sale or a separation of its online business, following a similar move by the department store chain Saks Fifth Avenue.

The New York-based hedge fund Engine Capital wants Kohl’s to explore the two alternatives to try to boost its stock price, it said in a letter sent to Kohl’s board that was published publicly on Monday. Engine Capital owns a roughly 1% stake in Kohl’s.

Kohl’s shares closed Friday at $48.45, roughly where they were trading a decade ago, giving Kohl’s a market value of about $7.3 billion — less than that of Macy’s but more than Nordstrom’s. Kohl’s stock is up about 19% year to date, underperforming the S&P 500. Its shares closed Monday up 5.4%.

Engine Capital said in its letter that assuming Kohl’s brings in online sales revenue of about $6.2 billion, Kohl’s digital business alone would be worth $12.4 billion.

Engine Capital also said it believes that there are private equity firms that would pay at least $75 per share for the retailer. And the group of investors said that talks with potential buyers suggest they could further monetize Kohl’s real estate.

“Kohl’s has a unique retail footprint relative to many mall-based retailers as well as a growing ecommerce presence,” Engine Capital said.

A spokeswoman for Kohl’s said the retailer’s board and management team are continuously examining opportunities to maximize shareholder value.

“Our strong performance this year demonstrates that our strategy is gaining traction and driving results,” the spokeswoman said in an emailed statement. “We appreciate the ongoing dialogue we are having with our shareholders and value their input and perspectives.”

These talks are arising as investors see the appeal of owning a piece of a faster-growing e-commerce division with more tech savvy operations. Saks’ digital arm is now reportedly aiming to go public with a valuation of $6 billion, or roughly six-times revenue. It had a $2 billion valuation as recent as March.

Meantime, Macy’s has been urged by activist group Jana Partners to spin off its e-commerce operations from its stores, hoping to fetch a greater valuation. Macy’s has since hired consulting firm AlixPartners to review its business structure.

“We also recognize the significant value the market is assigning to pure e-commerce businesses,” Macy’s CEO Jeff Gennette said on a recent earnings call. “And as we look at the landscape today, we are undertaking additional analysis that could help inform our long-term strategy to further unlock value for Macy’s.”

Kohl’s had another recent clash with activist investors who raised doubts about the company’s direction and tried to take control of its board. The group — Macellum Advisors, Ancora Holdings, Legion Partners Asset Management and 4010 Capital — came to an agreement with the retailer in April and added a few investor-backed independent directors to its board.

In 2014, Engine Capital pressured Ann, which owned the Ann Taylor and Loft fashion brands, to sell itself. The company did so the following year.

Read the full letter from Engine Capital here.

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