Commentary

Nordstrom Board Rings Up 'No Sale' To Family Members

There's a group of people in Seattle who think that department stores — at least the high-end one that’s based there — have a rosier future than others may believe. Acting on the advice of a special committee, the board of directors of Nordstrom yesterday turned down an offer of $50 in cash for each share of the company that descendants of founder John Nordstrom don’t already own. 

“The offer was below Monday's closing price of about $51.90 a share. The stock fell about 2% in after-hours trading Monday, to roughly $50.50 a share,” reports  CNBC’s Lauren Hirsch.

“A group of Nordstrom family members, which owns 31.2% of Nordstrom, has been working to take the retailer private since last year. The company had appointed a special committee to the company's board to evaluate those efforts,” Hirsch continues. 

“The special committee has reviewed the group’s indicative acquisition proposal, in consultation with its financial advisor and legal counsel, and has determined that the price proposed is inadequate,” Nordstrom states in a press release. “The special committee of the board on Monday said unless the family group can substantially improve its offer price, it plans to end discussions.”

They’re evidently going to try.

“The family group is now working on a new offer, according to a source familiar with the matter who requested not to be identified discussing confidential deliberations,” writes Reuters’ Harry Brumpton.

The fact that the family group’s offer was lower than the retailer’s closing price “illustrates the challenges of orchestrating a bid that will appeal to shareholders as well as the investment banks financing the bid and the family’s equity partner, buyout firm Leonard Green & Partners LP,” he observes.

“As part of the deal, the group would also buy 21% of the family’s current stake, allowing the heirs to cash out about $550 million of their ownership in the retail chain,” reports Suzanne Kapner for the Wall Street Journal.

“The family’s shares are mostly held by Bruce Nordstrom, a grandson of the founder and a former CEO, and his sister Anne Gittinger. The group also includes Bruce’s sons, Blake, Peter and Erik, who hold the title of co-president, and James Nordstrom, their cousin, who is president of stores,” Kapner writes. 

“This is no ordinary takeover battle. The group representing the founding family includes the retailer’s highest-ranking executives … a triumvirate that operates in place of a traditional chief executive officer. They’re up against their own independent directors, such as JPMorgan Chase & Co. executive Gordon Smith and TaskRabbit Inc. CEO Stacy Brown-Philpot,” writes Lindsey Rupp for Bloomberg.

“Everyone wants the best deal,” says Bloomberg Intelligence analyst Poonam Goyal, telling Rupp “the clash also may help draw rival bidders into the fray, potentially sending the price above $50. ‘They’ve set a floor, for sure,’” Goyal feels.

Meanwhile, “the family emphasized that the $50-a-share price represented a roughly 24% premium over where the shares were trading before it announced its intention to go private in June,” Michael Corkery points out for the New York Times. “The special committee, which includes the retailer’s independent directors, was formed to lead an impartial sales process on behalf of shareholders who are not part of the family.”

“Nordstrom has managed to avoid some of the pitfalls of other clothing and apparel stores by taking a conservative approach to opening new stores. But through the fall, the company still had trouble lining up financing to go private, as banks and other lenders waited to see how Nordstrom and other retailers weathered the holidays,” Corkery reports.

It also has been “investing heavily to try to adapt to the rise in online shopping. While some of its innovations — including opening a store in Los Angeles that doesn’t actually carry any clothes — have won it kudos from customers, analysts say it’s unclear whether the moves will pay off,” the WSJ’s Kapner observes.

The family wants to go private because “the company would have more freedom to try out new concepts without the constant scrutiny of investors and the pressure to deliver immediate financial returns,” reports USA Today. “But the retailer said in October that such plans were on hold since financing was hard to find on the brink of the upcoming holiday season.

“Then news came last week that Nordstrom’s holiday season was strong. The company reported record sales in 2017, yielding $15.1 billion in revenue, up from $14.4 billion the previous year.”

Hmmm. Maybe there's just something in the air in Seattle.

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