After months of negotiations, US department store giant Kohl’s Corp called off its sale to Franchise Group on Friday, citing declining markets and challenging financial conditions.

Kohl’s shares, which had already fallen 28 per cent since January, fell roughly 15 per cent in pre-market trading as a result of the failed talks and the retailer’s declining sales.

“Given the environment and market volatility, the board determined that it simply was not prudent to continue pursuing a deal,” Peter Boneparth, Kohl’s board chairman, said in a statement.

Kohl’s, which has over 1,100 stores in the United States, revealed last month that it has entered into exclusive talks with Franchise Group after being offered $60 per share.

On June 27, Franchise Group, owner of businesses such as Vitamin Shoppe and Buddy’s Home Furnishings, reduced its offer to $53. According to Kohl’s, the two sides “experienced major challenges in establishing a fully executable agreement.”

Kohl’s is likewise dealing with challenging market conditions as consumers tighten their belts in the face of rising inflation. The company now expects second-quarter revenues to be down by a high single-digit percentage, up from a low single-digit decline previously predicted.

Activist investors had been urging Kohl’s to sell for months, and the company began receiving bids in January at around $65 per share, but maintained those were undervalued. In May, the company won a proxy battle against Macellum Advisors amid concerns that board changes could jeopardise sales negotiations.

Since then, market conditions have deteriorated drastically, with bidders withdrawing or reducing their offers due to concerns about rising interest rates, inflation, and the Ukraine war.

A number of significant corporate transactions have been postponed this year as a drop in equity markets slashes firm valuations and a rise in interest rates makes deal financing more expensive and difficult to get.

Walgreens Boots Alliance cancelled its attempt to sell the UK pharmacy company Boots this week, claiming that no third party could make a sufficient offer due to global financial market turbulence. more info

Kohl’s, like other retailers, dropped its full-year profit prediction in May, with Chief Executive Michelle Gass stating that demand at the company’s department shops had deteriorated significantly due to inflation.

Franchise Group had previously stated that Gass and other top executives would retain their positions following a sale, implying to many investors that a deal was near.

(Adapted from Investing.com)

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