Nordstrom Mulls Going Private, Shares Up 4% Amid Review

Key Takeaway

• Nordstrom family explores taking the company private amid retail challenges, with shares rising over 4% following the announcement.
• A special committee and financial advisors from Morgan Stanley and Centerview Partners are evaluating the buyout proposal.
• The company faces financial struggles, with a 50% share decline over five years and strategic shifts towards online sales and Nordstrom Rack expansion.

Nordstrom Family Explores Buyout

Members of the Nordstrom founding family, including CEO Erik Nordstrom and President Pete Nordstrom, have indicated their interest in taking the company private. This move comes amid a challenging retail environment, particularly for department stores. Nordstrom Inc. has formed a special committee of independent directors to evaluate the proposal from the Nordstrom family and any other potential offers. Financial advisors from Morgan Stanley and Centerview Partners have been retained to assist in this evaluation. Despite these preliminary steps, the company has stated there is no guarantee that this exploration will result in a formal buyout offer or any transaction.

Shareholder and Market Response

Following the announcement of the potential buyout, Nordstrom's shares saw an increase of more than 4%, closing up at $18.74. This response from the market reflects investor optimism amidst the company's recent financial struggles. The Nordstrom family, which holds approximately a 30% stake in the company, has previously attempted to take the company private in 2017, a bid that was ultimately rejected by the board. Another significant shareholder is El Puerto de Liverpool SAB, which operates high-end department stores in Mexico and acquired a 9.9% stake in Nordstrom in 2022.

Financial Struggles and Strategic Shifts

Nordstrom has encountered financial and operational challenges, with its shares declining about 50% over the past five years, bringing the company's valuation to around $3 billion. The retail sector, especially department stores, has been under pressure due to weak sales, high inflation, and elevated borrowing costs, leading consumers to reduce discretionary spending. Nordstrom's decision to close its Canadian operations and a cautious outlook for the current fiscal year further highlight the retailer's difficulties. In response, Nordstrom is focusing on growth through online sales and the expansion of its off-price Nordstrom Rack locations.

Street Views

• Oliver Chen, TD Cowen (Neutral on Nordstrom):

  "As a private business, Nordstrom would have less quarterly scrutiny and the market’s near-term demands for growth... This would give the company 'greater freedom' to spend more money on long-term planning without worrying about the market’s reaction to lower margins."