Nordstrom Inc (NYSE: JWN) considers privatization with a $3.8B offer, aiming to address declining earnings and strategic missteps. What’s next for the retailer?
Nordstrom Inc (NYSE: JWN) may soon revert to a private entity as the founding Nordstrom family, which holds a significant ownership stake, has partnered with retail investor El Puerto de Liverpool to acquire the remaining shares. According to recent filings, the offer stands at $23 per share, representing a total valuation of approximately $3.8 billion. The proposed price offers a premium over the company’s market position at the start of the year and is being viewed as reasonable, given Nordstrom's current market capitalization and financial performance.
Analysts believe the offer is fair, considering Nordstrom’s declining earnings over the past five years. The company’s special board committee is expected to thoroughly assess the offer, examining the value of comparable companies, future growth potential, and overall financial health. The current offer price is significantly below the $50 per share offer rejected in 2018 when Nordstrom’s net earnings were much higher. The company's financial performance has significantly weakened since then, with earnings dropping 76% from 2018 to 2023.
Nordstrom's recent quarterly performance showed a modest recovery, with same-store sales growing by 3.4% year over year, driven by an 8.8% increase from its discount brand, Nordstrom Rack. However, some investors are expected to push back on the deal, as many may have purchased shares at prices far above the current offer. If shareholders feel the special committee has not thoroughly explored options to maximize value, there could be reputational risks, and even legal challenges may arise.
The chances of a competing bid emerging seem slim, as the Nordstrom family and Liverpool have stated that they do not intend to support any alternative acquisition offers or similar transactions.
Market analysts suggest that the timing of this offer could be linked to Nordstrom’s current financial situation, with profitability at a low point and limited investor interest in the stock. The Nordstrom family likely sees privatization as an opportunity to steer the company without the pressures of the public markets. However, it would limit the company's access to external capital.
Nordstrom has faced significant challenges in recent years, including missteps like its unprofitable expansion into Canada, delays in expanding its Nordstrom Rack chain, and a costly flagship store in New York. These decisions, combined with changing consumer shopping habits, have hurt the company’s competitive position in the retail landscape.
The company has also struggled to capitalize on the off-price retail trend, which has seen competitors like TJX Companies Inc (NYSE: TJX) thrive. Despite operating its own off-price brand, Nordstrom Rack, the company has seen limited growth in this segment, with only modest store expansions in recent years.
As consumer preferences shift, department stores, including Nordstrom, have faced growing competition from specialized retailers like Lululemon and beauty chains such as Sephora and Ulta. Many shoppers now opt for these brands rather than department stores, further challenging Nordstrom's ability to maintain its market share.
Although going private could provide Nordstrom with the freedom to make long-term strategic decisions without the scrutiny of public markets, it comes with risks. The retail industry has seen a wave of privatizations and consolidations as companies navigate the evolving marketplace. Major retailers, including Macy's Inc, have also faced similar pressures, considering buyout offers and restructuring to adapt to current market conditions.
Nordstrom, a company with deep family roots dating back to its founding in 1901, has largely remained under family leadership. However, in recent years, external investors and shareholders have raised questions about whether the company would have been better served by external leadership. While the Nordstrom family has faced challenges, they retain significant experience and heritage in running the business.
The potential privatization of Nordstrom marks a critical turning point in the company’s history as it seeks to adapt to new market realities and consumer behaviors. Whether privatization will provide the flexibility needed to drive future growth remains to be seen.
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