Founders of Nordstrom must step up bid to take retailer private

Nordstrom Inc. usually outperforms the broader department store industry because it offers exclusive brands and a differentiated shopping experience. But it’s a challenging time for the traditional retail sector, and that’s partly what’s behind the shakeup at Nordstrom, where the company’s founding family is now pitted against its board of directors. A much-anticipated attempt to take the 117-year-old retailer private arrived on Monday, with the family indicating it is willing to pay about US$50 per share in cash. The deal values the firm at about US$8.4 billion. Under the proposed bid, the Nordstrom family would contribute 79 per cent of its shares, and Los Angeles-based private equity firm Leonard Green & Partners would put up as much as US$2 billion. That would leave at least US$4 billion more to be borrowed, according to Carol Levenson, an analyst at bond research firm Gimme Credit. “The family ownership has provided stability of vision and financial policies have been relatively conservative,” she said. “Now that the family has indicated its interest in taking the company private, however, leverage is likely to rise dramatically during a turbulent time for the department store sector.”

Factoring in that estimate, Nordstrom’s rent-adjusted leverage would jump to almost 5x, with the lower-than-expected premium being offered by the Nordstrom family helping keep this figure down. The premium being offered is 24 per cent above Nordstrom’s unaffected share price, and below its 52-week high of US$54. Levenson also noted that the family’s offer is subject to financing, which won’t be easy to acquire given the “extremely risky ” proposition of taking Nordstrom private. A special committee of the board wants a higher offer, and has advised management not to share any more due diligence information for now. So it’s back to the drawing board for Nordstrom’s co-presidents Blake Nordstrom, Peter Nordstrom and Erik Nordstrom, along with other executives that share the name. The Nordstroms first initiated the privatization plan last June, with an intent to remove the company from the pressure of public markets to better execute a turnaround of the business. But the effort was suspended in October as attractive financing wasn’t available. Takeover speculation had already driven the stock up by nearly 10 per cent in 2018.