Prospects for the Nordstrom family taking their business private next year look good.
Nordstrom Inc.'s financial results are improving. Executives have done a good job managing expectations. The Fed has cut rates twice this year, and the regulatory environment has loosened up.
Brothers Erik and Pete Nordstrom, along with other members of the Nordstrom family and Mexican retailer Liverpool, have offered to acquire all of the outstanding shares of the company the group does not already own for $23 a share in cash, a total of $3.8 billion. The company is currently trading at around $23.19 a share. The Nordstrom family owns about one third of the stock. The family and any partners would have to own more than 50 percent of the voting shares to go private.
The Nordstroms first tried to take their company private in 2017, offering $50 a share, or $8.4 billion, with the backing of Leonard Green & Partners. That offer was considered too low and rejected by a special committee of the board.
Yet with the current lower offer, "I think the odds are decent and clearly better than last time," said Steve Dennis, author and president of SageBerry Consulting. "The business performance is more stable, interest rates are lowering, and there is lots of dry powder in the capital markets."
"We're expecting to see M&A activity pick up next year," added Stephen Sadove, senior adviser for Mastercard and former chairman and chief executive officer of Saks Inc., commenting on the general deal-making environment. "There's money out there that should be put to use."
As Nordstrom executives work to take the company private — a process seen taking many months — they've been successful executing on strategic priorities, including an aggressive expansion of the Rack off-price chain, digital growth and comp gains at the Nordstrom business. But as one retail source said, "Nordstrom needs to do more work outside of the public markets to address the underlying performance of their core business."
While the Nordstroms underscored the strength of the business with third-quarter results and raised the sales guidance for 2024 overall, CEO Erik Nordstrom cited a slowdown in the first couple of weeks of the fourth quarter, while Cathy Smith, chief financial officer, said the external environment is "uncertain" and that the company is "prudently cautious" on its outlook for the current quarter. Others, including executives at Gap Inc. and Lululemon Athletica Inc., sounded more bullish notes on the holiday season.
Nordstrom did report a third-quarter drop in net earnings, but there were increases in operating profits and sales revenues that surpassed Wall Street expectations. But investors remain concerned about expenses and by the commentary on sluggish early fourth-quarter selling.
Wall Street takes a dim view of Nordstrom and most department stores. Through a go-private transaction, Nordstrom could reach a higher valuation, and preempt an unwanted bid for the company. Given its low stock price and the recent string of investor interest in department stores, including Kohl's and Macy's, Nordstrom could be vulnerable to takeover offers.
On Thursday, Nordstrom declined to comment on the plan to take the company private, and referred WWD to its September disclosure by a special committee of the board, which indicated: "There can be no assurance that the company will pursue this transaction or other strategic outcome, or that a proposed transaction will be approved or consummated. The company does not intend to disclose further developments regarding this matter unless and until further disclosure is determined to be appropriate or necessary."
Two big questions surround the plan to go private: Is there a deadline for putting together a deal, and how would Nordstrom's strategies change once turning private?
"To accelerate growth and improve differentiation in a challenging market, Nordstrom needs to take bolder action to future proof it's business model much of which will take a lot of capital and not show payback for multiple years," Dennis said. "So getting out of the public eye could give them air cover, and allow them to not worry so much about quarterly earnings focus."
Going private takes the Nordstroms out from under the constant glare of Wall Street, and enables them to eliminate the time and costs of producing quarterly reports, staging conference calls and meetings with investors. Management would also deal with less public scrutiny, far fewer stakeholders and regulatory requirements, and can be more decisive with a smaller constituency to report to. They'll have more time to focus on long-term strategy and spend time with their families. Private companies can be less transparent so competitors know less about what they're up against.
But if Nordstrom had to borrow money and leverage up to do the deal, "it could put them in long-term financial jeopardy," Dennis said.
