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Published
Jun 8, 2017
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Nordstrom explores going private amidst troubling retail climate

Published
Jun 8, 2017

Nordstrom announced on Thursday that it is exploring the possibility of going private, a move that is very telling of the current retail climate.
 


Company Co-Presidents Blake W. Nordstrom, Peter E. Nordstrom, and Erik B. Nordstrom, President of Stores James F. Nordstrom, Chairman Emeritus Bruce A. Nordstrom, and Anne E. Gittinger have formed a group (the “Group”) to explore a “going private transaction” involving the acquisition by the Group of 100% of the outstanding shares of common stock of the company.
 
The Nordstrom Board of Directors also formed a special committee of independent directors to act on behalf of the company for the exploration and possible transaction. Though the Group is exploring the possibility, it has not made a proposal to Nordstrom.

The possibility of Nordstrom going private comes weeks after the Seattle-based retailer met its first quarter sales and earnings expectations, even with a decline in comparable store sales. 
 
In the week Nordstrom released its first quarter results, Macy’s, Dillard’s, and Kohl’s all reported first quarter declines. Nordstrom’s results were a breath of fresh air for retail, but the 0.8% decrease in comparable store sales showed that the retailer was not immune to the current retail climate.
 
In addition, the off-price Rack business, which includes HauteLook, increased in net sales by 8.7% and 2.3% in comparable sales, but the Nordstrom brand decreased 1.7% in net sales and 2.8% in comparable sales.The retailer also reaffirmed its outlook expectations for the year.
 
Nordstrom has fared better than other retailers as of late, but going private will alleviate the pressure of shareholder expectations.

THE PROS AND THE CONS

Market analysts and retail experts were divided about what the potential delisting could mean for the company.  Once it goes private, Nordstrom may be able to restructure its business, which is more difficult as a public company, said Erich Joachimsthaler, chief executive of Vivaldi, a consulting firm that works with retail brands. "It's the right move," he said.

At a share price of $46, the retailer would need to raise $5.45 billion to $8.19 billion of additional debt to fund the takeout, said Chuck Grom, analyst with Gordon Haskett. Such a move would come amid a wave of store closures and bankruptcies in the retail industry.

High-end department store chain Neiman Marcus, which went private in 2005, said in March it is exploring options as it seeks relief from its swelling debt pile.

UBS Group AG analysts said in a report that they were cautious about Nordstrom's ability to secure financing given problems in the retail sector. They also flagged a bid by the founder of electronics retailer Best Buy to take the company private that failed in 2013 when he was unable to raise $2.5 billion-$3 billion in debt.

Other analysts said that going private may be slightly easier for Nordstrom.

"Nordstrom is not highly levered, they have quite a bit in their way of real estate assets so is it probably easier for them to actually get this transaction done," said Jan Rogers Kniffen, chief executive of retail consultancy J. Rogers Kniffen WWE.

Founded in 1901 as a shoe store in Seattle, Nordstrom went public in 1971. The retailer, known for its high-end department stores and customer service, sells designer items including Jimmy Choo stilettos and Burberry trench coats.

Nordstrom operates 354 stores in 40 states which includes its Nordstrom branded full-line stores and off-price discount chain Nordstrom Rack. The company also operates stores in Canada and Puerto Rico.

Shares of other U.S. department store chains rose after Nordstrom's announcement. Dillard's Inc gained as much as 6.3 percent, Macy's rose 3.3 percent and Kohls Corp climbed 1.3 percent early Thursday. The stocks pared gains in afternoon trade.

THE MECHANICS BEHIND GOING PRIVATE

In a filing with the U.S. Securities and Exchange Commission, the department store operator said the group formed to consider going private had not made a formal proposal.

The group comprises Chairman Emeritus Bruce Nordstrom, his sister Anne Gittinger, President James Nordstrom and co-Presidents Blake, Peter and Erik Nordstrom.

The group, which owns 31.2 percent of the company, said it was not interested in selling its stake to third parties or voting for an alternative deal.

With the Nordstrom family's share ownership, the odds of a deal getting done are higher, said Grom with Gordon Haskett. The ownership would appear to satisfy the requirements of a leveraged buyout transaction, he said.

The largest shareholders in the company from the group include Bruce Nordstrom with 16.9 percent of outstanding shares, followed by Gittinger with 9.3 percent, according to Thomson Reuters data. Peter and Blake Nordstrom own about 1.7 percent each.

"Because of the changing dynamics in the retail environment, the group is evaluating whether the long-term interests of the issuer (Nordstrom) are better served as a privately held company," the members of the Nordstrom family said in a filing.

The company's board has formed a committee of independent directors to explore the possibility of any transaction that could be made by the group.

The committee said it had entered into an agreement with the Nordstrom family members over some standstill provisions that would prevent them from taking certain actions until Jan. 31, 2019.

The special committee has hired Centerview Partners as its financial adviser and Sidley Austin as legal counsel.

Nordstrom short sellers who had been having a profitable year took a hit on Thursday, by late morning losing about three-quarters of their estimated $186 million gain on paper in 2017, according to financial analytics firm S3 Partners.

With additional reporting by Reuters


 

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