Nordstrom Family Bids to Take Chain Private for $3.8 Billion
(Bloomberg) -- The Nordstrom family is looking to take their namesake department store chain private in a proposed $3.8 billion deal.
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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 $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 $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 fiscal 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 says of the forecast increase in profitability.
The company’s shares were little changed in New York trading as of 2:45 p.m. after briefly rising above the proposed offer price earlier in the morning. Nordstrom’s shares rose 24% year to date to $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 $250 million 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 $1.2 billion, 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.
“The involvement of El Puerto de Liverpool in the deal may mean there is potential to push the price higher – something the committee may well consider,” GlobalData analyst Neil Saunders wrote in a research note.
The Mexican company’s investors, however, might be skeptical. El Puerto de Liverpool has tried to distance itself from the struggles of US department stores in recent years and the potential deal with Nordstrom undermines that argument, Banco BTG Pactual SA analyst Alvaro Garcia wrote in a research note.
The company “is an attractive equity story because of its unique Mexican footprint and prowess in the higher income segment, and we don’t think investors will like the precedent this move sets up on the capital allocation front,” Garcia wrote.
“One could make the case they won’t be active on the M&A front after this,” he added, “and there is potential for increased returns to shareholders in the medium term (but this is wishful thinking).”
The Mexican company’s shares fell as much as 3.4% in trading in Mexico.
Liverpool, run by descendants of a French shareholder group that dates back more than a century, is one of Mexico’s most important high-end department store chains, with an ornate flagship location in the capital’s historic center. The $8.2 billion publicly-traded company has ventured beyond Mexico in recent years, acquiring a stake in Latin American retail operator Unicomer in 2011 and attempting unsuccessfully to acquire control of Chile’s Ripley SA in 2015 before turning its eyes to the US with the Nordstrom investment.
Max David Michel, part of the founding family and one of the richest people in the country, retired as head of Liverpool’s board earlier this year. The Michel family are also shareholders of Mexican beverage and retail behemoth Fomento Economico Mexicano SAB de CV.
--With assistance from Carolina Gonzalez and Daniel Cancel.
(Updates with analyst comments on Liverpool.)
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