Nordstrom, the luxury department store chain, announced on Monday, December 23, that it would become a private company after it agreed to a buyout deal valued at approximately $6.25 billion from Nordstrom’s founding family and Mexican department store El Puerto de Liverpool.
The board of directors of the mentioned firm unanimously approved the specified business agreement. This deal is expected to be closed in the first half of next year. After the implementation of the business agreement, the Nordstrom family will have majority ownership in the company, with 50.1%, and Liverpool will own 49.9%. It is also known that common shareholders of the firm will receive $24.25 in cash for each equity they hold.
Nordstrom chief executive officer Erik Nordstrom stated that for over a hundred years, the brand he heads has been guided by the fundamental principle of helping customers feel good and look their best. It was also noted that today marks an exciting new chapter for the business. On behalf of his family, he said that they look forward to working with their teams to ensure Nordstrom thrives long into the future.
It’s worth noting that the deal announced on Monday is not the company’s first attempt to go private. Previous efforts in this direction proved unsuccessful in 2018. In September, the Nordstrom family offered $23 a share for the chain. Against this background, the company was valued at approximately $3.76 billion.
On Monday, in early trading, the value of Nordstrom shares fell by about 1%. It is worth noting that when in March the media published information about the company’s intention to become private, its securities rapidly rose in price.
Last month, Nordstrom published data about the financial results of its operations in the third fiscal quarter. These figures exceeded Wall Street’s preliminary expectations. The company’s revenue for the mentioned period showed an increase of approximately 4% year-on-year. At the same time, Nordstrom has released a kind of moderately optimistic sales forecast for the full year. The company expects a soft holiday season.
It is worth mentioning that in the fiscal year ending in February 2019, Nordstrom’s annual revenue, including income from credit cards, was recorded at $15.9 billion. The company faced significant difficulties during the coronavirus pandemic, which has become a kind of shock factor for the entire global economy. Since then, Nordstrom has not been able to return to the financial performance seen before the outbreak of the pandemic. Analysts interviewed by the media predict that the company’s revenue for the current fiscal year will be fixed at $14.9 billion.
Morningstar Inc. analyst David Swartz stated that now is a smart time to make this take-private offer. According to the expert, the Nordstrom family and El Puerto de Liverpool are getting a good deal here and buying Nordstrom when its results are depressed. David Swartz expects the mentioned results to improve. Also, according to the expert, insiders are aware of the corresponding positive prospects.
Erik Gordon, a professor at the University of Michigan’s Ross School of Business, said that by going private, Nordstrom avoids the risk that an activist investor could push to remove executives. Also in this context, it was noted that the current management of the company delivered a long-term decline, rather than a long-term value creation.
Luxury clothing stores have come under pressure from retailers such as Walmart, Best Buy, and Target. It’s worth noting that customers continue to be choosy when purchasing the items they want. At the same time, this does not imply products that meet the critical needs of consumers, which cannot be ignored. When customers purchase the items they want, they pay attention to the price as a matter of priority.
Nordstrom was founded in 1901 as a shoe store. The company then transformed into a department store that sells a wide range of clothing and accessories across more than 350 Nordstrom, Nordstrom Local, and Nordstrom Rack locations.
El Puerto de Liverpool operates two other department store chains, Liverpool and Suburbia, and owns 29 shopping centers across Mexico.
For the past two years, investors have been hoping that Nordstrom Rack, an off-price chain, could help buoy the company’s growth prospects and offset sluggish sales at its more upscale flagship chain. At the same time, shoppers flocked to competitors such as TJ Maxx, seeking deals. The corresponding tendency is associated with a sharp increase in inflation after the coronavirus pandemic.
Nordstrom Rack’s performance was not characterized by sustainability. The company ran into difficulties when executives tweaked their strategy and stopped offering as many discounted fashion brands as possible. Over time, Nordstrom Rack reversed course, and sales bounced back. In recent quarters, the company’s executives have focused on opening more Rack stores. The corresponding actions contributed to the growth of the firm’s revenue.
The take-private deal will be financed through a combination of rollover equity by the Nordstrom family and Liverpool, cash commitments by Liverpool, up to $450 million in borrowings under a new $1.2 billion ABL bank financing, and company cash on hand.
Neil Saunders, managing director of GlobalData, praised the news released on Monday, noting that the family and their backers can make the necessary investments and changes away from the short-term scrutiny of public markets. In this context, it was noted that the family has the talent and ability to enact change, like El Puerto de Liverpool. Neil Saunders stated that they will likely run the business as a retailer rather than as some financial play, which is a very positive factor for the long-term health of the brand.
Department stores are currently at a crossroads. Rivals Macy’s and Bloomingdale’s are facing pressure from investors who believe the companies’ real estate may be more valuable than its retail operations. Macy’s has so far ignored attempts by activist investors to make major changes.
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