Macellum Capital Management CEO Jonathan Duskin sits down with Yahoo Finance Live to talk about the activist investor seeking control of Kohl's executive board following a poison-pill tactic, nominating 10 directors to the board, and restructuring the retailer.

Video Transcript

KARINA MITCHELL: All right, we are going to shift gears and now bring in our next guest. Activist investor Macellum seeks to take over Kohl's board with the nomination of 10 directors. Yahoo Finance's Brian Sozzi is joined by Macellum CEO, Jonathan Duskin, for more. Brian, take it away.

BRIAN SOZZI: All right, thanks so much, Karina. Jonathan, always good to get some time with you. So you had a very interesting Thursday. Come out here in the morning, nominate 10 new directors to Kohl's ginormous 14-member board. Now they came back a little bit after that, saying, what you have proposed is, quote, "unjustified and counterproductive." How do you respond to that?

JONATHAN DUSKIN: Not an unusual response from the company, right? I don't think very many boards would say that replacing the board members was justified, right? Of course they're going to be defensive here. Obviously we think it's way overdue. We ran a campaign last year. We were, I think, very reasonable. We added two directors. We gave it some time to play out. And unfortunately, we had probably one of the worst years for any retailer last year for Kohl's from the top line perspective, from the stock performance perspective.

And when we see the maneuvers they've made, putting in a poison pill, rejecting bona fide offers, we hear the level of interest that's out there, we really see a board that we think behaving somewhat disingenuously. They seem very self-serving, very entrenched. They seem intent on protecting their jobs over creating shareholder value and exploring ways to create shareholder value. So we really do think control is warranted here. Again, we tried to work very constructively with them over the last year. We waited patiently. And unfortunately, it is not going very well. And I think the time for material change is upon us.

BRIAN SOZZI: Isn't it supposed to be a board's job, Jonathan, to maximize shareholder value? And as someone with a lot of retail experience such as yourself and a lot of activist experience, what is it about this board that they could be looking away from wanting to take some pretty decent offers out there?

JONATHAN DUSKIN: It's really hard to know. I don't sit in the boardroom. I think it probably stems from the idea that they might be overly optimistic about the company's plans. Remember, this is a company whose stock price has been in the same place for two decades. This is a company that put out a very rosy plan, a strategic agenda, the Greatness agenda, they called it, in 2014, missed those objectives by a wide margin. They rolled out a plan in October of 2020 to generate material shareholder value. Obviously, that didn't come to fruition.

So it's always hard to know, but from the outside looking in, it appears there's a board that hope always springs eternal. They always think value creation is just around the corner. And I don't know that they have the right expertise on the board and the right experience on the board to really objectively analyze a plan and understand it at a detailed level enough to judge whether or not it's viable.

BRIAN SOZZI: Well, I recognize one person on that list we're showing right now, Jonathan. That's you. You nominated yourself to join the Kohl's board. If you were to join the Kohl's board, what would be some of your first actions?

JONATHAN DUSKIN: Well, you know, I think it's really important to have a shareholder representative in the room. I worked with a lot of great operators over the course of my career, and they bring a ton of experience and a ton of wisdom and knowledge about the industry. And I think they're really able to separate between what are the right initiatives and the wrong initiatives and how to prioritize the initiatives.

But I do think it's really important to have a shareholder perspective in the room to look at every initiative through the shareholders lens. I think a shareholder brings a certain urgency that sometimes even the greatest executives in the country might not share the same sense of urgency, particularly when shareholders have suffered for as long as they have.

You know, as for the first thing I would do, I think we have to get under the hood and do one of two things. You know, understand what the internal plan to create value looks like and understand what these offers look like. And determine what the maximum reasonable sale process might be able to generate, and compare that to what we think we can achieve on a standalone basis.

Obviously, we've pointed to the real estate value here as something we think is a suppressed asset. But unlocking the real estate value is really not great, unless you know you're going to turn the business around, right? You want to be able to buy your stock back today with the proceeds from the sale leaseback, knowing you're going to have an improved business into the future.

And so I think it's really incumbent upon myself and whoever else is in the boardroom at that time to make sure we have a plan that can generate material shareholder value. And if not, then look to see what the best possible price we can achieve in the sale through the sale processes.

BRIAN SOZZI: You know, I mentioned before, the last time we spoke to you just a couple of weeks ago, when you put out another letter, but, you know, you have considerable experience in activist investing. You know, I went back and I looked at what you did at Bed, Bath & Beyond, drove a lot of change there. You know, what-- do you think this is your toughest activist battle yet?

JONATHAN DUSKIN: I don't know. It's a tough question. The company that I'm the lead director of today, a company called Citi Trends, we ran a campaign in 2017. I joined the board as one director. And it taught me that it's really hard to be a small minority in the boardroom and make a difference. And I think perhaps that's what happened to the directors we added last year. You know, there are two directors of 14. It's really hard to effectuate change when you have such a large and cumbersome, unwieldy board.

So is it the toughest? I don't know. In Citi Trends, we came back and ran another campaign and ultimately replaced the majority of the directors and went on to generate tremendous shareholder value. In Kohl's, it's difficult. We've tried to engage constructively with them. That obviously hasn't worked. They told us under no uncertain terms would they consider adding a shareholder representative or adding any new director to the board at the beginning of the year. And we were somewhat shocked by that, considering the performance, and disappointed.

So, you know, I think the facts speak for themselves. So maybe in one regard, it's not a difficult campaign. I think all shareholders are-- a lot of shareholders are seeing the facts and the numbers the way we're seeing it and are going to demand change. And I think everybody is curious to see what a real, robust sale process might be able to yield in terms of price. You know, they rejected these offers they got, and they used the plural of offers so we know it's more than one. And obviously, Leonard Green was rumored or reported to be interested as well earlier this week.

And they rejected these offers in two weeks. It's really hard to think that they ran a robust process. It's hard to think that they gave the interested parties information that might inform the bids, that might be able to get them to raise their bids. It's hard to imagine they were able to get access to management and really do a deep dive here and see if they could offer more for the company. So we'll wait and see how this develops, but we were obviously disappointed by that.

BRIAN SOZZI: Been fascinating to watch this one play out. Always appreciate you hopping on with us to talk about it. Macellum Capital Management CEO Jonathan Duskin, have a great weekend. Enjoy the big game.