Nordstrom suspends buyout after struggling to get financing
NORDSTROM Inc. is suspending efforts to take the company private after struggling to get financing with favourable terms, another sign that the department-store industry has lost favour with both customers and investors.
The controlling members of the Nordstrom family will renew a review of its operations after the holiday season, the company announced on Monday. In scrubbing the deal for now, the chain cited “the difficulty of obtaining debt financing in the current retail environment.”
The buyout deal was meant to help the company continue its turnaround efforts outside the glare of market scrutiny. But even Nordstrom’s prestige – the upscale retailer is seen as a stronger business than the likes of Macy’s, J.C. Penney and Sears – couldn’t sway enough potential lenders.
“Nordstom is a high-quality retailer, but it is still an apparel retailer, and that becomes difficult to finance,” said Tom Shandell, chief executive officer of Marble Point Credit Management. The industry is being “painted with one brush,” he said.
The announcement sent the shares down as much as 6.5 per cent to US$39.86 (RM170) in New York trading. The stock was already down 11 per cent this year through the end of last week.
Nordstrom embarked on the buyout plan in June, sending the stock on its biggest rally in more than eight years. Family members formed a group to evaluate a possible deal, which would involve acquiring 100 per cent of the outstanding shares. The board also created a special committee in connection with the idea.
Together, the Nordstrom family owns about 30 per cent of the company, which was founded as a Seattle shoe store in 1901. Gordon Haskett analyst Chuck Grom estimated that they needed to raise between US$5.65 billion and US$8.19 billion to acquire the remainder of the retailer.
But brick-and-mortar retail is a tough sell. While credit generally has been free-flowing for companies amid a global hunt for yield, it’s been a different story for an industry that has increasingly come under distress.
Borrowing costs in a Bank of America Merrill Lynch index of junk-rated retailers climbed 1.3 percentage points during the past year to 8.31 per cent. For junk issuers more broadly, the measure dropped about half a percentage point to six per cent, the index data show.
The entire department-store industry has been scrambling to overhaul operations after years of slowing sales. Macy’s, J.C. Penney and Sears are closing hundreds of locations and trying to beef up their online sites.
Nordstrom hasn’t been hit as hard by that downturn. In August, the company reported a quarterly same-store sales gain of 1.7 per cent. Analysts had predicted a drop of 0.5 per cent.
Still, the company has been looking for new ideas in a bid to freshen its image. Last month, Nordstrom announced a smaller store concept called a “neighborhood hub” that doesn’t carry inventory on site. Instead, customers try on clothing and have it delivered.
Leveraged buyouts have been a risky gambit for many retailers. Toys “R” Us was pushed into bankruptcy last month, more than a decade after a takeprivate deal with Bain Capital, KKR & Co. and Vornado Realty Trust loaded it with debt.
Nordstrom has about US$2.7 billion of debt maturing between 2020 and 2044, according to data compiled by Bloomberg. Most of that debt trades above par, and the company is rated triple-B by all three major ratings agencies, an investment-grade rating. S&P Global Ratings has said that a potential buyout of the chain would involve “significant leverage” that could lead to a downgrade of the company’s debt. — WP-Bloomberg