Traditional business: A Nordstrom department store in the United States. Nordstrom’s annual revenue numbers are still lower than before the pandemic. — AFP
NEW YORK: The Nordstrom family is looking to take their namesake department store chain private in a proposed US$3.8bil deal.
Erik and Peter Nordstrom, the great grandsons of founder John Nordstrom, and executives at the company, said on Wednesday that they formed a group with other family members and the Mexican department store chain El Puerto de Liverpool, which took a stake in the company two years ago.
Liverpool owns around 9.6% of Nordstrom’s shares, according to a regulatory filing. Together with the Nordstrom family, the group holds 43% of shares, the filing said.
US department stores have been on a downward slide for years, with some executives and investors turning to dealmaking to try to address their woes.
Activist investors failed to take Macy’s Inc private recently after the company rejected their bid.
Macy’s executives are focusing on shrinking the number of namesake stores across the country to cut costs.
The owner of Saks Fifth Avenue bought Neiman Marcus Group earlier this year with the help of Amazon.com Inc.
High inflation and interest rates have also driven consumers to less expensive retailers. Nordstrom’s annual revenue is still less than it was before the pandemic, but its Rack discount stores performed better than expected, slightly boosting the high-end department store chain’s overall outlook for the rest of the year.
The take-private offer of US$23 per share is a bid to rebuild the storied department-store chain away from the glare of quarterly reporting and the public markets. It’s not guaranteed to convince shareholders, however.
The Nordstrom family’s offer to take the chain private at a price close to what it was trading at before the offer could prompt an initial rejection from the board. The family previously tried to take Nordstrom Inc private at US$50 a share, but the board ultimately rejected those talks in 2018.
The bid is low, Morningstar analyst David Swartz said. “There’s a chance the board will reject it.”
The family appears to be seizing on the department store’s depressed profitability, he said, which is low compared to other US retailers and historically for the company.
He forecasts Nordstrom’s operating margin will be 3.7% in the current financial year but expects it to recover to 6% in 2027. While that figure is well below the 11% operating margins the company reported about a decade ago, it’s still an increase from its current doldrums.
“The shareholders should benefit from that,” Swartz said of the forecast increase in profitability.
The company’s shares were little changed in New York trading as of 2.45pm after briefly rising above the proposed offer price earlier in the morning. Nordstrom’s shares rose 24% year to date to US$22.82 through Tuesday’s close.
The group said the offer represented a 35% premium over where the company’s shares were trading on March 18, when reports of discussions between the company and family surfaced.
Bloomberg Intelligence analyst Mary Ross Gilbert said the family’s take-private offer could draw other bidders, citing strong growth prospects for Rack.
The proposed transaction would be financed through a combination of equity and cash commitments by family members and Liverpool, as well as US$250mil in new bank financing.
Following the deal, the company would be 50.1% owned by the family and 49.9% by Liverpool, which operates 312 stores in Mexico.
Nordstrom’s board of directors confirmed it had received the offer and that a special committee that included “independent and disinterested directors” would review the proposal.
Liverpool said separately the proposal represents a new capital investment of at least US$1.2bil, which would be covered with its own resources and financing. The participation of the second-largest shareholder after the Nordstrom family increases the likelihood of closing the deal. The board could also see it as an opportunity. — Bloomberg
