The Update Issue: Activist Efforts at Hasbro and Kohl's, Post-Pandemic Behavior Shifts, and the Cult of Disney

One activist fails to cross the finish line while another succeeds in getting private equity to circle its target... Back in March, I wrote about hedge fund Alta Fox Capital Management's bid to push toymaker Hasbro (HAS) to spin off its Wizards of the Coast and Digital Gaming division. The division is home to games […] Not rendering correctly? View this e-mail as a web page [here](. [Empire Financial Daily] The Update Issue: Activist Efforts at Hasbro and Kohl's, Post-Pandemic Behavior Shifts, and the Cult of Disney By Berna Barshay --------------------------------------------------------------- [Do you own any EV stocks?]( If you think it's too late to get into EV stocks, think again. Our proprietary analysis indicates that the EV market is set to grow by 133% on average every year. Former Nissan executive Andy Palmer compares the shift to "moving from the horse to the car." These are the five EV stocks you must own ([one is revealed FREE in this presentation](. --------------------------------------------------------------- One activist fails to cross the finish line while another succeeds in getting private equity to circle its target... Back in March, I wrote about [hedge fund Alta Fox Capital Management's bid to push toymaker Hasbro (HAS) to spin off its Wizards of the Coast and Digital Gaming division](. The division is home to games with both traditional and digital presence, like Dungeons & Dragons and Magic: The Gathering. The fund argued that these assets were undervalued within Hasbro... and it was probably right about that. In order to force a spin-off of that division, Alta Fox bought just under 3% of Hasbro's shares outstanding and began a campaign to replace five of the 13 board members with its own hand-picked candidates. But facing resistance, Alta Fox's goals eventually got just a little smaller. First the contest for five board seats dropped to three, and later it dropped to a quest for just one seat... which it didn't get. Yesterday, Hasbro announced that all 13 of the directors that the company had put forward had won reelection. Even though Alta Fox made a compelling financial case for the spin-off, I am not entirely surprised they didn't prevail. Back in March, I said that I wasn't sure whether Alta Fox would be successful in spurring a spin-off. I have always thought Hasbro was a well-managed company, and enough shareholders agreed with that and were willing to give management the benefit of the doubt. I expect it to be a decelerating demand environment for toys – both because of the macro backdrop but also because the toy sector was a definite COVID beneficiary, setting up for tough comps with the 2020 to 2021 period. For long-term investors, I remain bullish on HAS shares because of the company's strong franchises and long track record of excellent execution. Alta Fox, despite its defeat in the proxy battle, isn't giving up on Hasbro either... In a statement, the fund said, "We will seek to maintain a dialogue with the Board to ensure a culture of accountability is put in place." Meanwhile, the private equity drama continues to envelop retailer Kohl's (KSS)... Cage-rattling from an activist hedge fund prompted a flurry of private equity interest in Kohl's earlier this year. [When we last checked in on this bidding war in April]( two private equity firms and one public holding company had offered bids ranging from $64 to $69 per share for the retailer. Since then, KSS shares have taken a tumble. Take a look... Since that essay, KSS shares are down 26%... That's a huge downward move for a company that's actively in play. But it's not surprising that KSS shares have traded lower, given the extreme bearishness about the retail sector right now – the SPDR S&P Retail Fund (XRT) is down 13% over the same time frame. I have been vocal that I don't understand the fascination with taking Kohl's private and why multiple firms are tripping over each other for this opportunity. As I said back in April... The fact that there are so many bidders says less about the untapped opportunity at Kohl's than it does about too much money chasing too few private equity deals. I maintain this was never a compelling deal. Kohl's isn't a particularly expensive stock, but I don't think it is being poorly run... So I'm not sure what value a private equity owner can bring to the situation besides financial engineering. Sure, levering up the balance sheet with debt can juice equity returns if business stays good. But if there's a meaningful or sustained downturn, it could also accelerate financial distress. A private equity owner can also "add value" by choosing to underinvest in the business, depriving the chain of necessary investments and upkeep and pull a lot of cash out of it now. However, this kind of management is often terminal in the long run... Just look what happened to Sears and Kmart – both went bankrupt and are nearing extinction now. In mid-May, Kohl's issued a profit warning along with the release of its first-quarter earnings results. This led to the bids getting lowered. Right now, Franchise Group (FRG) has the leading bid at $60 per share. It had previously offered $69 per share for Kohl's. Trading around $46, KSS shares are trading at a tremendous discount – more than 20% – to that $60-per-share bid. This hefty discount reflects investor skepticism that the non-binding bid will make it through the current period of due diligence. If the deal becomes official, investors could see a quick gain of around 25%... But if it doesn't, KSS shares probably have some downside ahead. The shares are actually trading $3, or 6%, lower than where they were when all this takeout speculation started in mid-January... But retail stocks, using the XRT as a proxy, are down 20% in the same period. I don't love the risk-reward of getting involved with Kohl's... and I would stay on the sidelines at these levels. --------------------------------------------------------------- Recommended Link: [A financial disaster is coming to America this year]( The man who called the 2008 and 2020 crashes predicts a massive financial "heist" could sweep the U.S. He's already warned the U.S. Pentagon and the FBI. But few people are willing to admit this could actually happen on U.S. soil. Or how one move right now could make you massive profits as it unfolds. [Click here to learn more](. --------------------------------------------------------------- Moving on, some new habits from the pandemic are definitely fading away, while others are sticking... Online grocery shopping seems to be on the outs... A survey from Morning Consult which was published earlier this week shows that the frequency of online grocery ordering has been on the decline in recent months... The share of consumers who report ordering groceries online at least once a week has declined among the most engaged demographics. Among high-income households, weekly online grocery ordering fell from 29% in October 2021 to 18% in April 2022. Among millennials and urbanites, that share dropped 7 percentage points, while a 9-point drop was seen among parents with kids under 18 at home. Preference for shopping in store was always high, but it has ticked up with the most important cohorts recently... Source: Morning Consult The obvious explanation for this is that most people are a lot less worried about getting COVID-19 than they were six months ago. Whether the risk is still there or not, most people are just over it and are willing to take their chances returning to normal daily activities. Online grocery shopping also often carries a premium. With inflation raging in food and other areas, consumers may be watching their wallet more and are less inclined to pay delivery charges. In October 2021, Amazon's (AMZN) Whole Foods instated a $9.95 delivery charge... In food delivery, as in restaurant food delivery and ride hailing app rides, the ["venture capital subsidy" of consumer services]( is quickly going away. However, not every service that got a boost from the pandemic is seeing a reversal of its fortunes... The number of people using streaming services to access entertainment continues to climb. According to this chart from the most recent investor letter put out by streaming platform device maker Roku (ROKU), for the first time ever, streaming TV devices are reaching more adults every week in the U.S. than traditional cable/satellite set-top boxes and DVRs... Source: Roku Both online grocery shopping and streaming TV got a bump during the early lockdown phase of the pandemic – the former as a workaround when people were afraid to go out, and the latter as a form of diversion during those endless hours trapped at home. Now, almost everyone – even the most COVID fearful – have returned to their outside lives and previous routines, which apparently includes picking their own produce. Yet somehow, streaming has been stickier... probably because it's a better mousetrap than watching linear TV. You can binge, you can bring it with you, there are usually fewer ads... all reasons for consumers to prefer streaming. Trying to differentiate the COVID beneficiaries that are about to crash from those that got a permanent lift is an exercise that almost every investor continues to grapple with. Speaking of streaming, this week I saw a religion professor make a better case for owning shares of media giant Disney (DIS) than any Wall Street analyst has lately... In a long Twitter (TWTR) thread that I am sure many people hated and others found sacrilegious or even offensive, Jodi Eichler-Levine, professor of religion at Lehigh University, defended the much-vilified class of "Disney adults" with an analogy about how the fanatical devotion to Disney brands has evolved as a grounding philosophy for its adherents, much like a traditional religion. The thread was inspired by the viral story of couple who did not feed the guests at their wedding and instead reallocated that budget to paying for appearances by Mickie and Minnie Mouse twice during their wedding weekend. Professor Eichler-Levine explained why the Disney Parks have become a version of mecca for some... Source: Twitter/@jeichlerlevine She wasn't defending the couple so much as explaining their questionable choices when it came to wedding planning. The thread was a great read – you can find the rest of it [here](. And it goes a lot further in explaining the multi-decade bull case for DIS shares than any Wall Street report ever could. And here's something that I can't get out of my head... Nothing business related here, but I recently saw an image that has been haunting me. Earlier this week, the U.K. newspaper The Telegraph published an article about Ukrainian students who returned to their bombed-out school to celebrate what should have been their high school graduation among the ruins. One girl wore her prom dress, which had already been purchased before the Russians showed up in February... Source: The Telegraph The photo was taken in Kharkiv and is a chilling reminder of all the suffering and lives that were interrupted, even as the war in Ukraine has gotten pushed off the front burner of the news cycle. In the mailbag, a couple of letters that hit on themes from today's essay... Do activists and private equity seem to be overreaching here with Hasbro and Kohl's, which are both generally regarded as well-run companies? Are you at the grocery store more often these days but continuing the streaming habit? Do Disney adults scare you... or should we "live and let live?" Share your thoughts in an e-mail by [clicking here](mailto:feedback@empirefinancialresearch.com?subject=Feedback%20for%20Berna). "Hi Berna I like your retail reports. Great stuff. One clarification on Franchise Group (potential buyer of Kohl's): FRG sold the Liberty Tax business (they no longer own it) in mid-2021." – Mark T. Berna comment: Mark, you are right and I indeed missed that Franchise had done that in my earlier essay. Thanks for keeping me honest! "Regarding food delivery, the only ones I use are where the restaurant itself has its own delivery service. For me, that means, almost exclusively, delivery from my favorite local pizza place. I do this only because the only times I order pizza are when we have guests and going out to pick up and bring home the pizza interrupts the flow of the visit. All other takeout I pick up and bring home myself, and I haven't ordered grocery delivery since the peak of Covid-19." – Otto K. Berna comment: Otto, based on the Morning Consult survey referenced above, it seems like you are in good company! Regards, Berna Barshay June 9, 2022 If someone forwarded you this e-mail and you would like to be added to my e-mail list to receive e-mails like this every weekday, simply [sign up here](. © 2022 Empire Financial Research. All rights reserved. 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