Kohl's scraps sale talks with Franchise Group, shares plunge

(Reuters) -Department store chain Kohl’s Corp on Friday called off its sale to Vitamin Shoppe-owner Franchise Group, blaming a downturn in market conditions.

Kohl’s shares, which are down nearly 28% this year, fell about 11% in premarket trading.

“Given the environment and market volatility, the board determined that it simply was not prudent to continue pursuing a deal,” the company said.

Facing pressure from activist investors who wanted the company to sell itself, Kohl’s began getting bids in January at around $65 a share but rejected them for undervaluing the company.

However, market conditions have worsened dramatically since then amid fears of rising interest rates, runaway inflation and the crisis in Ukraine, prompting bidders to either drop out of the takeover race or cut their offer price.

CNBC reported earlier this month that Franchise considered lowering its bid to $50 per share.

A number of major corporate deals have been shelved this year as a downturn in equity markets pummels company valuations, while a spike in interest rates makes deal financing costlier and harder to access.

Earlier this week, Walgreens Boots Alliance scrapped the plan to sell its UK high street pharmacy chain, Boots, saying no third party was able to make an adequate offer due to the turmoil in global financial markets.

Kohl’s in May joined a host of other retailers in cutting its full-year profit forecast, with Chief Executive Michelle Gass saying demand at the company’s department stores had “considerably weakened” due to inflation.

The company said it now expects sales to be down in high single digits for the second quarter from its previous forecast of a drop in low single digits.

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