Janice R. Andrews
The Nordstrom family, who are descended from John Nordstrom, the father of the famous American department store, has taken a big step to take back full control of the company that bears their name. Erik and Peter Nordstrom, who are in charge of the family business, announced a $3.8 billion plan to take it private on Wednesday. The family is trying to buy the last few shares of Nordstrom by teaming up with the Mexican shopping giant El Puerto de Liverpool, which already owns 9.6% of the company. This is a big step towards taking the business off the public markets since the Nordstrom family and Liverpool now own 43% of the company’s shares.
It’s not the first time that the Nordstrom family has tried to sell the business. The board turned down an offer of $50 per share in 2018, and they may do the same thing with the current offer of $23 per share. Analysts have said that this price might be too low, even though it is in line with Nordstrom’s present market place. David Swartz, a research expert at Morningstar, said that the bid takes advantage of Nordstrom’s low income, which is lower than in the past and compared to other U.S. stores. Swartz thinks that Nordstrom’s profit margin will be 3.7% this fiscal year, but it will rise to 6% by 2027. Shareholders may hope for a better return because of this possible rebound, which could make them push for a higher price.
U.S. department stores are still having a hard time
The attempt to take Nordstrom private shows the bigger problems that U.S. department shops are having. In the past ten years, standard retail chains have had to deal with less foot traffic, more competition from online stores, and changing customer tastes. One of Nordstrom’s main competitors, Macy’s, recently fought off an attempt by radical investors to take the company private. Instead, the company focused on cutting the number of stores it had to save money. In the same way, Saks Fifth Avenue’s owner bought Neiman Marcus earlier this year. This shows that mergers and acquisitions are happening more often in this sector.
High inflation and rising interest rates have made these problems even worse, and they have led many people to look for cheaper options in stores. Even with all of these problems, Nordstrom has been able to stay afloat. The company’s yearly sales are still lower than they were before the pandemic, but its Rack discount shops have done better than expected, which gives us hope for future growth. But things are still not smooth for traditional department stores like Nordstrom. Going private could be a way for the family to have more control as they deal with these unknowns.
Details on Nordstrom’s plan to go private
The Nordstrom family’s offer of $23 per share is not very high, but it is 35% higher than the price of the stock in mid-March, when the bid was first rumoured. Nordstrom stock had gained 24% so far this year and was worth $22.82 at the end of trading on Tuesday. Even though shares quickly went above the offer price after the news came out in the morning, they stayed pretty stable by mid-afternoon. This means that buyers might be wary about how likely it is that the deal will go through or how many other offers might come in.
An expert at Bloomberg Intelligence named Mary Ross Gilbert said that the Nordstrom family’s offer might get other buyers interested, especially since Nordstrom’s Rack discount brand has room to grow. Because of the success of The Rack, Nordstrom could become a good target for investors or businesses that want to grow in the U.S. Still, the family’s close ties to the business and the fact that Liverpool is involved give them a unique edge in closing the deal.
If the deal goes through, the Nordstrom family and Liverpool would each contribute some stock and cash, and a new bank loan of $250 million would also be used to pay for it. The family would own 50.1% of the company after the deal, while Liverpool would own the other 49.9%. Liverpool, which has 312 shops in Mexico, bought a piece of Nordstrom two years ago and has been a key strategic partner for the company ever since.
What El Puerto de Liverpool Did and How People Reacted
People are interested in this deal because El Puerto de Liverpool is involved. This is because their participation could change the bid price and have effects on the Mexican market. Liverpool has said that it will pay for at least $1.2 billion of the spending with its own money and resources. This is a big promise from the shopping giant. The deal is more likely to go through now that the second-largest Nordstrom backer is on board.
Liverpool’s owners, on the other hand, might not be as excited. In the past few years, the Mexican company has tried to separate itself from the failing U.S. department store model. Some analysts at Banco BTG Pactual, like Alvaro Garcia, are not sure about the deal. Garcia pointed out that Liverpool’s investment in Nordstrom goes against its earlier policy of staying away from the problems U.S. stores are having. Shareholders in Liverpool may not be as excited about this move as they were before. They thought the company was a strong player in Mexico’s high-end retail market. On the Mexican stock market, Liverpool’s shares dropped by as much as 3.4% after the news came out.
Even though this was the first response, Liverpool’s leadership, which includes relatives of the company’s original French shareholders, seems committed to the deal. Liverpool has always been a major player in Mexico’s retail market, but it has shown it wants to expand beyond the country’s borders by buying shares in other Latin American businesses and is now focussing on the U.S. with its investment in Nordstrom.
How Things Will Go From Here for Nordstrom
As Nordstrom’s board looks over the take-private offer, it’s still not clear if owners will accept the price or try to get it raised. If Liverpool is involved, it might tip the scales in favour of the Nordstrom family, but there is also a chance that other offers will come in. The board of directors of the company said that the plan will be looked at by a special group of independent directors. This will make sure that any choice made is in the best interest of all shareholders.
Taking the Nordstrom family business private gives them the freedom to run the business without the stress of public markets and yearly earnings reports. It’s also a chance to rebuild the brand and focus on long-term growth, especially with Rack in the cheap market. But the future is still unclear because the company is still having trouble with the business environment.
