What Nordstrom Could Gain — or Lose — From a Go-Private Deal

Nordstrom Inc. reportedly moved closer this week to inking a go-private deal with Leonard Green & Partners. The retail-focused private equity firm has reportedly courted the publicly traded department store chain for years but in a increasingly pressured retail climate, some experts believe it could be prime time for Nordstrom to pull the trigger.

Arguably Nordstrom is one of the best retailers on the planet, and it stands to reason that if the family can take it private during this period of major retail disruption, they will have more flexibility in how they approach evolving the business,” retail industry analyst Jeff Van Sinderen said.

Navigating turbulent retail waters as public company under the highly critical gaze of shareholders has been a challenge for Nordstrom — which has outperformed many of its peers amid industrywide meltdowns — and many other public companies in recent years.

Every move made by management to evolve the business is scrutinized by shareholders, and in some cases, longer-term strategic, innovative moves that require testing are not perceived as being of near-term benefit to shareholders,” Van Sinderen said.

To illustrate his view, Van Sinderen pointed out that this week when Nordstrom announced its smaller, cutting-edge “Nordstrom Local” concept, the firm’s stock immediately declined.

“Ironically, this new tech-savvy concept test is exactly the type of innovative move that strong retailers like Nordstrom need to make,” he said. “Some elements of test concepts will work and other won’t, but new, innovative concepts need to be tested in brick-and-mortar and evolved as part of the framework of building the longer-term future of these businesses, which inevitably will have both physical and digital elements.”

Cowen & Co. analyst Oliver Chen — who said this week that he deemed a go-private deal to be “likely” for Nordstrom — also described the Nordstrom Local as “a bold and exciting attempt to mitigate and eliminate pain points” in retail.

Nordstrom does have critical ingredients that can enable the retailer to win and maintain profitable share in the face of Amazon’s intensifying competition,” Chen further noted. “We think Nordstrom is digitally obsessed and the best example in the department store sector of using mobile and online to drive customers to stores, universalizing inventory management and providing the best experience for how and where customers prefer to shop across both full-price and off-price/value channels as well.”

Still, if Nordstrom is to remain public and continue to test innovative and digital-savvy concepts, it’s going to have to contend with shareholders — many of whom are focused on short-term gains.

The problem is that as a public company, shareholders will sometimes punish you for anything experimental that does not necessarily have a positive contribution to the near-term P&L,” Van Sinderen said. “With the right partners, such as a Leonard Green, and at the right price, a take-private deal for Nordstrom seems feasible.

Still a deal would be far from quick and easy, experts said.

If the Nordstrom family — which currently holds 51.8 million shares, or a 31.2 percent stake in the company — does the take the firm private, the company’s debt is expected to swell.

Chen projected that a deal in the low-$50-per-share range is possible. (Nordstrom stock has hovered around the $45 mark for much of the year.)

“To put together the financing to do this deal, but we think that the ‘clincher’ will be the price paid,” Van Sinderen said. “At a certain price it makes sense and above that level, it simply becomes too risky for all parties. [And] it almost goes without saying that the Nordstrom family wants to pay the lowest ‘fair’ price possible, and knowing how smart they are, I would anticipate that they will adhere to discipline on price paid.”

Nordstrom announced in June that it was mulling a deal to take the company private.

As of 2 p.m. ET, Nordstrom shares were in the red 2.2 percent to $46.72.

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