Foreign Investors Raising Interest in U.S. Firms
At least two overseas investors appear to be eyeing U.S. retailers. Will more follow suit?
The two retailers, The Children’s Place and Kohl’s Corp., recently saw foreign investors take significant stakes in their companies.
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It’s actually not that common to hear of foreign investment interest in a U.S. retailer. The examples, whether by a strategic or a financial investor, are few and far between. In addition, the track record isn’t great.
There’s Canadian real estate developer Robert Campeau who in the 1980s bought Allied Stores for $3.6 billion using mostly debt. He later added his $6.6 billion takeover of Federated Department Stores to his holdings and merged it with Allied. But Campeau failed to refinance Federated’s debt, sending the retailer into bankruptcy. Federated emerged from bankruptcy in 1992, and went on to acquire out of bankruptcy R.H. Macy & Co., its chief competitor, in 1994. Federated changed its corporate name in 2007 to Macy’s Inc.
There was also the upscale Japanese fashion retailer The Isetan Co., which bankrolled the expansion of Barneys New York’s three U.S. flagships in New York, Chicago and Beverly Hills. But the investment derailed because of a dispute and Barneys filed for bankruptcy in 1993. The retailer exited bankruptcy three years later and was acquired by American apparel giant Jones Apparel Group Inc. for $400 million in 2004.
Jones sold Barneys in 2007 to Istithmar World, the investment arm of the Dubai government, for $942.3 million. Two years later, the Middle Eastern emirate faced financial pressures and began hunting for a buyer for the specialty chain. In 2012, Barneys was taken over by Richard Perry in a debt-for-equity swap. Barney’s ended up in bankruptcy again, and was acquired in 2019 by current owner Authentic Brands Group.
There’s been other foreign interest in the past, but those explorations failed for one reason or another. Fast Retailing was in the running to acquire Barneys but dropped out, which paved the way for Istithmar’s deal. And in the first Barneys bankruptcy case, there was a $240 million bid from Hong Kong’s Dickson Concepts that was rejected by the creditors committee, while a revised bid failed to get finalized.
And then there was Baugur Group, the Icelandic investment firm which eventually owned an 8.5 percent stake in Saks Inc. in 2007. Baugur, which had stakes in House of Fraser and Hamleys, had been interested in acquiring Saks, and even considered a joint bid with Dubai-owned Landmark Group. But tight credit markets and Iceland’s financial crisis eventually led to Baugur’s own bankruptcy filing in 2009.
The Children’s Place
The children’s retailer on Thursday said Snowball Compounding Ltd. sent a letter notifying the company that it owns 54 percent of the retailer’s outstanding shares. Snowball, which is connected to Mithaq Capital SPC, also intends to nominate 11 people to the retailer’s board of directors at its 2024 Annual Meeting of Shareholders. The Children’s Place said in a statement that it plans to accept Mithaq’s request to enter into talks about financing to help with the retailer’s liquidity needs. But if those talks result in a financing agreement, that would need the approval of the retailer’s lenders. And that’s where the share acquisition gets interesting.
The Gymboree owner said Mithaq’s share purchases triggered a “Change of Control” provision that caused a default event under its lending agreement and that it needs to obtain a waiver to reconcile the default. For now, Mithaq’s equity position could be deemed worthless until lenders sign off on the waiver.
And the way Mithaq took control of the retailer—buying shares on the open market over a three-day period, according to regulatory filings with the Securities and Exchange Commission—is highly unusual. One former retail executive said the share purchases was one way to effect a takeover at a “value” price. But what’s unclear is why Mithaq is interested in the retailer.
Shares of the stock were trading in the $19 range, well off the 52-week high of $46.09. But after the company’s Feb. 9 fourth-quarter profit warning and disclosure of its liquidity problems, the shares began trading at a discount and were as low a $8.30 a share. Regulatory filings by Mithaq noted share purchases in the range of $9.40 to $17.10.
Mithaq Capital is a Saudi Arabian firm based in Riyadh. It reportedly operates as a family office of the Al-Rajhi family, which founded Al Rajhi Bank in 1957.
Kohl’s Corp.
Kohl’s has seen its share of activist investors over the last two years. Most recently, the department store retailer caught the attention of Vision One Management Partners, which has built a stake in the company and is believed to have asked Kohl’s to put itself up for sale.
But Vision One isn’t the only institutional investor keeping close tabs on Kohl’s. Regulatory filings—required when stakes reach 5 percent or higher—show that Dimensional Fund Advisors and FMR have taken sizable positions. But the one that’s most interesting is Singaporean sovereign wealth fund GIC Private Limited, which took a 5.01 percent stake in Kohl’s, according to an SEC filing.
Unlike Mithaq, which seems to new to retail, GIC is no stranger to the sector through its real estate positions. In June 2001, GIC said it and The Phoenix Mills Limited formed a strategic partnership to establish an investment platform for retail-led mixed-used assets in India. GIC’s minority stake was valued at $733 million, consisting of 3.4 million square feet of leasable retail and office space located in prime consumption centers of Mumbai and Pune.
“GIC has been investing in India for more than a decade and our long-term confidence in the Indian real estate market remains strong,” Lee Kok Sun, GIC’s chief investment officer of real estate, said at the time.
Since then, GIC has continued its real estate focused investments, partnering with local firms for convenience-based shopping centers in Australia and distribution centers and stores in Brazil. Those moves suggest that GIC could be banking on a shift in ownership of Kohl’s real estate, especially if activists become more vocal in agitating for change.
GIC has invested in U.S. real estate before. In 2006, the company invested $200 million in Stuyvesant Town-Peter Cooper Village, but that GIC later posted a $675 million on the investment after Tishman Speyer Properties and BlackRock Realty defaulted on their loan in 2010.
