Kohl’s Sends Letter To Shareholders Highlighting Board Leadership And Robust Process

Protect The Value Of Your Investment In Kohl’s–Reject Macellum’s Empty Agenda And Vote The Blue Proxy Card Today For All Of Kohl’s Highly Qualified Director Nominees.

Dear Fellow Shareholder,

Your Board has the skills necessary to oversee Kohl’s strategy while exploring any potential value-maximizing opportunities. Comprised of 13 independent directors and our CEO, your Board has industry-leading experience in areas critical to our growth, including retail, e-commerce, and technology, as well as robust financial and M&A expertise. Your Board is fully engaged and will continue to take action to maximize value for all shareholders.

The Kohl’s Board is taking the right steps to maximize shareholder value.

Overseeing the company’s value creation strategy: Your Board, working closely with Kohl’s management team, has acted decisively to put the company on a new trajectory for improved growth and accelerated profitability. Since announcing our new strategy in October 2020, Kohl’s has made substantial progress in transforming our business, achieving record earnings per share in 2021. Total shareholder returns (TSR) have been 146 percent from October 19, 2020 through January 21, 2022, significantly outperforming the SPDR S&P Retail ETF and the S&P 500. TSR over a 5-year period has far exceeded the median of our peers, as shown in the chart below.

Running a robust and intentional process: We are committed to testing and measuring our strategy against alternatives. In January, the Board and its Finance Committee, comprised solely of independent directors including a designee from Macellum Advisors GP, LLC (Macellum), directed Goldman Sachs to engage with bidders who submitted indications of interest in Kohl’s that were non-binding and without committed financing. This process continues and involves further engagement with select bidders who submitted indications of interest in Kohl’s, including assisting with further due diligence that may create opportunities to refine and improve proposals.

Refreshing the Board with the right skills and experience: As Kohl’s strategy has evolved, the Board has proactively added the right capabilities and skillsets to accelerate Kohl’s transformation into the most trusted retailer of choice for the Active and Casual lifestyle. The Board has added six new independent directors in three years, including the three directors who joined Kohl’s Board last year as part of the company’s settlement with Macellum, the hedge fund now seeking to take control of Kohl’s. Our directors bring highly relevant experience from top roles at leading retail companies such as Lululemon, Walmart, Burlington, and Kroger, as well as deep experience in M&A, technology and operations.

Macellum’s campaign: an empty agenda
Macellum is attempting to take control of your Board with an inexperienced, unqualified slate. Six of ten nominees have never served on a public company board, and none have served on a retail company board of comparable size to Kohl’s. In addition, Macellum is promoting an ever-changing narrative, misinformed claims, and value-destructive proposals, all of which reveal a reckless and short-term approach that is not in the interest of driving long-term, sustainable value.

Macellum has offered virtually no new ideas; the few ideas they have presented are short-term focused and likely to destroy significant value: Macellum has presented no value-enhancing proposals. The sale leasebacks that they are demanding are an inefficient source of financing that would negatively impact margins by adding unnecessary rent expenses in perpetuity and risk Kohl’s investment-grade rating. While Kohl’s utilized sale leaseback transactions in May 2020 under unique circumstances, they are typically an inefficient means of accessing capital. A large sale leaseback would also potentially limit Kohl’s flexibility to explore all avenues to create value for shareholders. Notably, Macellum also previously urged Big Lots to pursue sale leasebacks, arguing that they would create significant value. Big Lots then engaged in a sale leaseback transaction in April 2020. Big Lots subsequently saw a meaningful decline in operating margin, and Bloomberg reported in August 2020 that the sale leaseback was a factor in thwarting a buyout offer from Apollo Global Management.

Macellum’s campaign is riddled with contradictions: Macellum has repeatedly contradicted itself in its public attacks on Kohl’s. Examples include:

• Macellum criticized Kohl’s Board for rejecting a $64 offer while claiming the company was worth “at least $100 per share.”
• Macellum called Kohl’s shareholder rights plan an entrenchment mechanism while publicly acknowledging it is a “stop, look, and listen device.”
• Macellum praised the omnichannel approach as the future of the industry only months before calling on Kohl’s to spin-off its e-commerce business.

Macellum appears to be advocating for a quick sale of Kohl’s at any price: Macellum’s push for a hasty sale at any price reveals a short-term approach that is not in the best interest of Kohl’s shareholders. Macellum has repeatedly criticized Kohl’s for rejecting an offer to acquire the company at $64 per share, a price that is well below the value that Macellum itself publicly declared. Their focus on short-term value is further evidenced in the selling of stock in the low $60s over the last month.

Macellum continues to make false and disruptive statements about the Board’s engagement with bidders: Macellum’s reckless and baseless commentary on your Board’s M&A process is particularly concerning. Macellum is not a party to the process, yet they continue to make false statements that have the potential to distract bidders.

Macellum’s criticisms of Kohl’s are ill-informed: Macellum has called 2021 a “lost year” for Kohl’s, despite the company achieving record EPS. Additionally, Macellum seeks to mislead investors by focusing on Kohl’s stock performance on the day of its recent investor day that corresponded with a global market decline driven by heightened concerns of war in Ukraine and a surge in global oil prices—another example of Macellum opportunistically promoting an empty narrative. Regarding our go-forward strategy as articulated in our Q4 earnings and investor day, we have received positive feedback from shareholders and analysts, and the average analyst estimate for Kohl’s 2022 EPS has increased by 10 percent since those two events.

Macellum “day traded” Kohl’s options, netting tens of millions in profits: As the graph below shows, Macellum bought call options representing 2.5 million shares of Kohl’s common stock in the two weeks before Acacia’s unsolicited expression of interest was publicly reported. In the following trading days, Macellum sold most of these options, all while stating that Kohl’s was worth “at least $100 per share.”

Several of Macellum’s nominees are not truly independent given their close ties to the hedge fund’s founding partner, who is also on the slate: Four of Macellum’s nine nominees have close professional ties to Macellum’s Founding Partner Jonathan Duskin, who is also a nominee. Macellum evidently handpicked these nominees for their proximity to Mr. Duskin to amplify the hedge fund’s short-term agenda. In contrast, the Kohl’s Board is 100 percent independent with the sole exception of the CEO and benefits from the diverse perspectives of our directors who are acting in the best interest of all shareholders. Adding directors beholden to one particular shareholder would destroy this dynamic.

The choice is clear: Re-elect the Kohl’s Board, which has the right skills and expertise to drive our strategy forward while evaluating any value-creating opportunities, or elect Jonathan Duskin and his associates to destroy value in the strategic alternatives process or as operators.

Your Board is committed to protecting shareholders’ interests and taking proactive measures to maximize long-term value. Macellum’s contradictory and misinformed claims, short-term proposals, and unqualified director slate with close ties to the hedge fund, by contrast, make clear the stakes in this director election.