J.C. Penney owners Simon and Brookfield prepared to buy Kohl's for $8.6B, NY Post reports

Dive Brief:

Simon Property Group and Brookfield Asset Management have reportedly pooled their resources to bid $68 per share for Kohl’s, which would value the department store at some $8.6 billion. The New York Post first reported the news, citing unnamed sources.
Simon and Brookfield have teamed up previously – buying Kohl’s rival J.C. Penney and fast-fashion retailer Forever 21 in 2020, and teen retailer Aeropostale in 2016, all out of bankruptcy. Brookfield divested from Forever 21 in 2021.
Neither Simon Property Group nor Brookfield returned requests for comment on the report. Kohl’s did not return a request for comment.

Dive Insight:

Simon and Brookfield have quite a bit of experience blurring the lines between landlord and tenant. Simon shares a robust portfolio of retail names as partner in Sparc Group, a 50-50 tie-up with brand management firm Authentic Brands Group; Sparc is now the operator of Aeropostale, Forever 21, Lucky Brand and Brooks Brothers.

Brookfield two years ago announced it aims to put $5 billion toward revitalizing struggling retailers, focused on those with $250 million or more in normalized revenues.

"On the surface, the offer would be far more attractive than other bids on the table, if only because Simon and Brookfield would continue to run Kohl’s as a retailer and would bring some of their retail and operational expertise to the chain," GlobalData Managing Director Neil Saunders said in emailed comments.

Simon Property Group CEO David Simon has previously touted those investments as an opportunity to rescue retailers that would otherwise fade from the landscape. Observers have also noted that the move saves stores that would otherwise close up, leaving blank space in malls that these days is getting harder to fill.

In this case, the plan would have one entity run both J.C. Penney and Kohl's, capitalizing on synergies that would help reach a goal of slashing $1 billion in expenses at Kohl's, according to the Post's report.

"These savings would likely be at the back end, with a focus on operations and logistics," Saunders said. "As the two chains don’t have a great deal of store overlap, any deal would give Simon and Brookfield [a] presence in many locations that JC Penney doesn’t serve."

But the two are distinct retailers that do need individualized attention, Saunders also warned. "Merging things like buying units and marketing functions would make little sense and would be a strategic mistake," he said. "This also underlines that creating a bigger business of two struggling department stores would not magically transform the fortunes of either."

Kohl's is mainly found at strip centers, so it's possible that these mall REITs are interested in expanding their reach in those locations, and they would definitely benefit from moving Kohl's to fill empty spaces at their indoor malls, according to Nick Egelanian, president of retail development firm SiteWorks. But he also expects them to contemplate spinning off Kohl's e-commerce in order to monetize the side of the business that investors are assessing at a premium, especially when it comes to department stores.

In December, hedge fund Engine Capital said it conservatively estimated the worth of Kohl’s digital business alone at $12.4 billion, around 40% higher than the enterprise value of its entire business.

"It's all about what the pieces are worth to them," Egelanian said of Simon and Brookfield. "They are not a strategic investor, in the sense of investing for the long term. They're investing tactically, for the short to medium term."