Dive Brief:
- The Nordstrom family is getting serious about taking the company private as they talk with potential private equity partners and offer up preferential terms to lure possible future investors in a private Nordstrom, five sources familiar with the matter told Reuters. Nordstrom did not immediately respond to a request from Retail Dive for comment.
- The family’s offer of concessions, such as private stock that would pay high future dividends or pay out first, has been “successful in reinvigorating talks” with potential partners to raise $1 billion in equity, according to the sources. Possible partners include private equity firms Leonard Green & Partners LP, Apollo Global Management LLC and KKR & Co LLP.
- Alternately, Nordstrom family members are also considering raising $7 billion to $8 billion in debt to finance a go-private transaction. In addition to buying out public shareholders, the family wants to make investments in the company itself, including bolstering its e-commerce operations, expanding its off-price Nordstrom Rack, putting money into its most profitable stores and closing underperforming stores, according to Reuters.
Dive Insight:
As Wall Street punishes much of the non-Amazon retail sector amid sales and profit declines, going private can offer maneuverability to reinvent businesses and invest in the future. Just one problem: It costs a lot of money, something many companies are struggling to come up with.
Members of the Nordstrom family announced in June that they were considering taking the company private, though at the time they had filed no proposals and made no promises that it would happen. (Investors loved what they heard anyway, giving the company’s stock a 20% bump at the time.) The group considering a takeover included company executives Blake Nordstrom, Peter Nordstrom and Erik Nordstrom, as well as Chairman Emeritus Bruce Nordstrom and Anne Gittinger.
Erich Joachimsthaler, CEO of growth strategy firm Vivaldi, told Retail Dive at the time that going private was a smart play for the company. “Nordstrom goes private in order to massively restructure its business which is impossible as a public company. It is the right move," he said. "Either you disrupt or you are the disrupted. As a public company with the asset heaviness of the department store business and low margins, they cannot disrupt. This is the precursor of massive changes in retailing.”
The announcement followed a first quarter that saw net sales for its flagship unit fall 1.7% and same-store sales fall 2.8%.Its off-price Rack unit has been a bright spot, but experts have raised concerns that the success of Rack could be cannibalizing sales at its full-price stores.
A private restructuring would likely take Nordstrom three to five years, Howard Davidowitz, chairman of New York City-based retail consulting and investment banking firm Davidowitz & Associates, told Retail Dive. Mark Cohen, director of retail studies at Columbia University's Graduate School of Business, said of the announcement, “Going private, assuming it did not entail taking on a crushing level of debt, may very well be the best thing that could happen to Nordstrom.”
The time could be ripe for such a transaction. With retail stocks down, the price of taking a company private is lower. It could give Nordstrom a longer timeline to turn things around. It could also preempt an activist rebellion, such as those some fellow department store chains and other retailers have been fending off.
For example, an activist shareholder is currently pressing Canadian retailer Hudson’s Bay, owner of the Saks chain that competes with Nordstrom, to sell off its most treasured and valuable property holdings and potentially use the money to take itself private. Macy’s also recently fended off an activist that wanted it to spin off its property holdings. Elsewhere in retail, an activist this week took a stake in Barnes & Noble and suggested the bookseller sell itself and/or go private. Kate Spade in May sold itself to Coach following activist pressure to look for a buyout.
Nordstrom’s fellow department store retailer Neiman Marcus decided to stay private this year, ditching plans to file an IPO after quarterly sales took a steep dive.
