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Key to Simon-Brookfield pursuit of Kohl's: JCPenney

Apr 26, 2022
A crowd gathers in a freshly-paved black-asphalt parking lot in front of a Kohl's department store for a Sephora beauty store launch.

Photo: Eugene Gologursky/Getty Images for Sephora at Kohl's

A long list of potential buyers have turned up for Kohl's. As for what deal makes the most M&A sense for the department store (should it go down that road), the latest pair of suitors adds the most amount of industrial logic.

Why it matters: Suitors Simon Property Group and Brookfield Properties own JCPenney, a Kohl's rival. By merging the two banners, huge cost savings could be realized through sourcing, distribution and administration. Cash flows can be borrowed against or reinvested. The combined company could grow and thrive.

Details: Two sources familiar with the matter confirmed that Simon and Brookfield are pursuing a joint bid for Kohl's. While a merger of JCPenney and Kohl's has been floated at various points over the years, this may be the most tangible effort yet to bring them together.

  • Both chains have similar or overlapping customer bases. Important note: Sephora began making the transition from JCPenney to Kohl's in late 2020.

The intrigue: Would a deal make for a happy reunion between Sephora and its former partner? Or could there be some weird tension there?

Yes, but: An offer from Simon/Brookfield has hefty competition from another strategic suitor, Hudson's Bay.

How they stack up: While Simon and Brookfield may have the advantage when it comes to synergies, Hudson's Bay is known for its ability to squeeze value out of assets.

  • Exhibit A: Saks.

Reality check: It has been months since reports first surfaced about a potential sale of Kohl's, with plenty of interest voiced, but the overall process still at an early phase, one of the sources noted.

  • And this interest is running along side the company's effort to grow the business and thwart a proxy contest lodged by activist Macellum Advisors, which is nominating its own directors to the board and pushing for Kohl's to sell itself.

The bottom line: There's still not an "actionable" bid backed by fully committed financing that the board must take up, the source added.

Simon and Brookfield did not respond to requests for comments.

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