Nordstrom's current take private offer is fair, pros say, as past missteps cost its chance at growth
Nordstrom (JWN) may soon return to its roots as a private business.
The founding Nordstrom family, who owns roughly 33% of shares, is teaming up with retail investor El Puerto de Liverpool, who owns a 10% stake, to take the company private. The group is buying the remaining 57% of the company for $23 per share or $3.8 billion dollars, according to a regulatory filing on Wednesday.
GlobalData’s managing director of retail Neil Saunders told Yahoo Finance that the offer is a "fair price," given Nordstrom's current market cap.
The company said a "special committee of the Board of Directors of Nordstrom, Inc. ... confirmed receipt of a proposal" from both parties and "will carefully review the proposal in consultation with independent financial and legal advisors to determine the course of action that is in the best interests of Nordstrom and all shareholders."
Saunders said the committee could evaluate the offer by looking at what similar companies are worth, the future trajectory of the business, and its growth state.
The offer price, a hair above the current stock price, is a nearly 30% premium to where shares started the year at $17.78.
In 2018, the company opted to reject the Nordstrom family's offer to take it private at around $50 per share. Its net earnings have dropped 76% from 2018 to 2023.
The 123-year-old retailer is still looking to find its footing. In its latest quarter, same-store sales were up 3.4% year over year, boosted by an 8.8% growth from its discount brand Nordstrom Rack.
Morningstar's David Swartz told Yahoo Finance that shareholders will likely want more. "You expect that if you're a public shareholder that if the company is sold, you're going to make some money on it."
Many shareholders likely bought in at above $23. Since shares hit an all-time high around $80 per share, the stock is down more than 70%.
If investors feel like the special committee didn't do due diligence to maximize returns, it could "not only be a risk in terms of reputation," but shareholders could seek out legal action, Swartz said.
It's unlikely Nordstrom will receive other competing offers. Per the filing, the Nordstrom family and Liverpool "have no intention to vote in favor of any alternative or competing sale, merger or similar transaction involving the Company."
The timing could be an indication of Nordstrom's current state of affairs, Swartz said.
"Nordstrom's management knows this is probably a good time to take the company private because the profitability at the moment is pretty much at the rock bottom and investor interest in the stock is at rock bottom."
The company, founded in 1901, has only been run by family outsiders once. Various missteps by current management have accelerated its decline.
Questionable steps include its expansion into Canada, building a flagship store in New York, waiting to expand its Rack stores, and not recognizing increasing demand for direct to consumer, per Swartz.
Canada was unprofitable from the get-go, as there were already "well-established" competitors in the market, said Swartz.
Its flagship store in New York, which stretches 285,000 square feet, took six years to complete. Swartz called the decision an "unorthodox move" as retailers moved away from building expensive stores.
Shortly after it opened in 2018, another iconic department store, Barneys shuttered its doors after declaring bankruptcy.
The company then waited until recently to expand its Rack business, while discount retailers like TJX (TJX), which owns chains Marshalls, TJ Maxx, and Home Goods, have outperformed department stores for years.
As of Q2, the company has 269 Nordstrom Rack stores, up from 247 a year ago. It has 94 namesake Nordstrom stores, down from 93 a year ago.
"The Rack was basically used as a clearing house for excess Nordstrom stock with some very bland brands and not very interesting offers," Saunders said of the company's approach.
"Most off-price, as in Ross, TJX, Burlington, have grown enormously since 2019 ... Rack has barely grown at all," added Saunders. "That is a massive lost opportunity, because off-price has been on fire."
And Nordstrom, like the rest of the industry, is being hit as shopping trends change.
"Are [shoppers] going to say Nordstrom as the No. 1 choice? Probably not," Swartz said. "They're probably going to say Lululemon or Alo Yoga ... when people shop for beauty these days, they're more likely to go to a beauty retailer like Sephora or Ulta rather than a department store."
Being private would allow Nordstrom to make long-term decisions without having to answer to the pressure of the public market, but would make it harder to access capital.
"The business is at a turning point... we've come out of the pandemic. We are now in a phase of reinvention, and it is an opportune time to say we'd like to do that reinvention as a private business," Saunders said.
There has been a wave of privatization and consolidation in the industry. On July 15, Macy's (M) ended discussions of a buyout bid from one of its shareholders, Arkhouse, and its partner, Brigade Capital Management. The offer first became publicly known early last December.
"One of the things that we've seen in retail the last couple of quarters is an acceleration of the bifurcating trends in retail, between market share winners such as off-price and other specific brands that have newness and innovation that are comping quite positively, and a tougher trend in department stores overall," Brooke Roach, a vice president at Goldman Sachs, told Yahoo Finance.
She added that many retailers, including both Macy's and Nordstrom, have expressed a "more cautious outlook on their consumer" in their quarterly earnings.
Nordstrom has a long history of being a family business. It wasn't until the late '90s that an outsider, John Whitacre, was named the company's first non-family CEO.
In 2000, both Whitacre and CFO Michael Stein resigned, and fourth-generation Nordstrom family member Blake Nordstrom was named president.
In 2015, Blake's brothers, Erik and Peter Nordstrom, also joined the company as co-presidents.
Then, in 2018, with all three at the helm, the Nordstrom family tried to take the company private, but a special committee of the Nordstrom board ended discussions.
In January 2019, Blake passed away unexpectedly. Erik Nordstrom told Yahoo Finance in April the company is leaning into its heritage with a focus on the consumer to compete in a new era.
"The future is always with the customer, it's the history of our company, is about taking care of our customers and that goes ... for a lot of us [who] grew up on the shoe floor and you're literally on your hands and knees in front of the customer," Erik Nordstrom said.
He became CEO in 2020, while Peter was named chief brand officer. In early 2023, activist investor Ryan Cohen, who now serves as Gamestop (GME) CEO, started knocking on its door, taking a share in the company and looking to shake up its board.
Neither Saunders nor Swartz saw Cohen as a sizable threat.
"I don't think [Cohen] knows how to run a department store. Quite frankly, telling the Nordstrom family how to run the business is a little bit rich, in my opinion," Saunders said. "They may not get everything right, and they may have had difficulties, but they do have a great deal of experience in heritage in running a department store."
Cohen declined to comment to Yahoo Finance, but Nordstrom did add Procter & Gamble executive Guy B. Persaud to the board later on in 2023.
Many shareholders may question if the company should have been managed by outsiders over the years, "instead of people who happen to have the same last name as on the sign," said Swartz.
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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at [email protected].