NEW YORK — Members of the Nordstrom family with the help of a Mexican retail group are offering to take the century-old department store private for $3.76 billion per share cash, months after first expressing interest in a buyout.
In a letter to the board of directors dated Tuesday, Erik Nordstrom said the Nordstrom family members own about 33.4% of the company’s outstanding common stock and is willing to pay investors $23 for each share they own.
The Mexican retail group, called El Puerto de Liverpool, operates more than 300 stores in Mexico and is that nation’s third-largest credit card issuer with over 7.2 million active accounts. It already owns approximately 9.6% of Nordstrom stock.
The offer represents a premium of nearly 35% to Nordstrom’s stock since March 18 when media reports about the proposed transaction first emerged, shares have rallied this year and traded for just above $23 on Wednesday.
“That the Nordstrom family have made an offer to buy the department store chain comes as no surprise. What is interesting is the $23 a share value which is pretty much the current price of the stock, said Neil Saunders, managing director of GlobalData. ”The lack of any real premium would, under normal circumstances, make the offer unattractive. However, as a family-run firm the dynamics are slightly different, and it will be up to an independent committee to determine whether this is in the best interests of the company and its investors.”
Nordstrom last month reported sales growth of 3.4% in the second quarter, as sales in stores open at least a year — a key metric of a retailer’s health — rose 1.9%. But net income slipped nearly 11% to $122 million. Adjusted earnings per share totaled 96 cents, and overall results beat analyst estimates. Besides its namesake upscale stores, the company also operates discount Nordstrom Rack stores, which have become a strength.
Sales at Nordstrom Rack jumped 8.8% in the most recent quarter and its comparable sales rose 4.1%.
“The offer comes at a time when Nordstrom is getting back on track after a long period of poor performance,” Saunders said. “However, the business remains one of two halves. The department store division has various structural challenges, while the off-price Rack division is starting to produce some good growth. This mixed outlook will limit the amount any party is willing to pay.”
Erik B. and Peter E. Nordstrom are the fourth-generation leaders of the retailer, which was founded in 1901 as a shoe store. Erik is the company’s chief executive and Peter is president. In the regulatory filing the family cited the health of their late father Bruce Nordstrom as one impetus behind the proposed transaction. Former chairman Bruce Nordstrom died in May at 90 years old.
The Nordstroms and their partner say they have commitments for $250 million in new bank financing.
Nordstrom, based in Seattle, acknowledged receipt of the proposal and a special committee of the board of directors — which it had already formed in April — will evaluate the offer.
Shares of Nordstrom, up 27% this year, edged slightly higher to $23.16 Wednesday.
The Nordstrom family has recently announced their proposal to privatize the iconic department store chain for a whopping $3.76 billion in partnership with a Mexican retail group. This move comes as the retail industry continues to face challenges from online competitors and changing consumer preferences.
The Nordstrom family, which owns a 31.2% stake in the company, has been considering taking the company private for some time now. The family believes that going private will allow the company to focus on long-term growth and strategic initiatives without the pressure of quarterly earnings reports and shareholder demands.
The proposed deal would involve the Nordstrom family partnering with the Mexican retail group, which has not been named at this time. The partnership would provide the necessary financing to take the company private at a price of $50 per share, representing a premium of 24% over Nordstrom’s closing price on Friday.
Privatizing the company would give the Nordstrom family more control over the direction of the business and allow them to make decisions that are in the best interest of the company’s long-term success. It would also give them the flexibility to invest in new technologies and initiatives that could help Nordstrom stay competitive in an increasingly challenging retail environment.
The proposal is subject to approval by Nordstrom’s board of directors, as well as a majority of shareholders. The company’s independent directors have formed a special committee to review the proposal and consider other strategic alternatives.
If the deal goes through, it would mark a significant turning point for Nordstrom, which has been a fixture in the retail industry for over a century. The company has faced increasing competition from online retailers like Amazon and changing consumer preferences towards online shopping and fast fashion.
Overall, the privatization proposal by the Nordstrom family represents a bold move to secure the future of the iconic department store chain. It will be interesting to see how this partnership with the Mexican retail group unfolds and what it means for the future of Nordstrom.
