Nordstrom’s Go-Private Deal: Why the Time Is Now

After putting its go-private plans on hold in October, Nordstrom Inc.’s founding family group is reportedly preparing to submit an offer to move ahead.

Citing people familiar with the matter, Reuters suggested the family — which has reportedly met with investment banks over the last few weeks — could seal the deal before reporting fourth-quarter earnings on March 1.

While the several-day turnaround seems ambitious on its face, B. Riley FBR analyst Jeff Van Sinderen said he wouldn’t be surprised to see the deal come to fruition quickly, given several factors.

“With a better holiday period in tow, it would seem that although the price the family pays might be a little higher, the banks are probably feeling a bit less anxious about financing a deal in this space, and that suggests it might get done more easily,” Van Sinderen said. “Given the stage they are at — presumably, obtaining financing — it stands to reason that a deal could come together pretty quickly if all parties agree on terms.

In June, Nordstrom — led by co-presidents Blake, Erik and Peter Nordstrom —announced plans to find a private buyer for stocks of the company not owned by the family. At the time, the Nordstroms  owned 51,830,957 shares, or an approximate 31.2 percent stake, of its common stock. In October, the family said it would suspend those plans until after the holiday season.

Navigating turbulent retail waters as a 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 publicly traded firms 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,” Sinderen told FN in September of Nordstrom’s go-private plans.

Nordstrom’s willingness to test niche concepts and think outside the box amid digital disruption and consumer shifts toward experiential spending has been a huge component in its ability to withstand — and even lead — retail’s frantic revolution.

For example, the firm was a pioneer of the “buy online, pick up in store” platform — which has been a saving grace for traditional brick-and-mortar players seeking to leverage retail locations and create better omnichannel cohesion as digital demands accelerate. The company followed up that news last year with another cutting-edge idea: smaller stores called “Nordstrom Local,” which focus on experiences and services in lieu of products.

But as a testament to the difficulties of operating under the shareholder gaze, Nordstrom’s stock plummeted on the heels of the announcement.

“Ironically, this new tech-savvy concept test is exactly the type of innovative move that strong retailers like Nordstrom need to make,” Van Sinderen said at the time. “Some elements of test concepts will work and others 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.”

Despite the tremendous support Nordstrom has received from many retail experts touting the need for more innovation in the struggling department store sector, new advancements are not cheap to implement, and the risk of failure is often high — which tends to spook investors.

While the go-private deal seems promising for Nordstrom, closing it before Thursday’s Q4 earnings report remains a lofty goal.

When the department store chain last reported earnings, it posted sales of $3.5 billion, an improvement of 2 percent over the previous same period but just below forecasts for sales of $3.6 billion. Comparable sales fell 0.9 percent, while analysts had expected a comp decline of 0.3 percent.

Nordstrom reversed its losses — which were $10 million in the comparable period — and posted a profit of $114 million, or 67 cents per diluted share. Those results topped forecasts for diluted earnings per share of 64 cents.

(The company said its results were affected by hurricanes Irma, Harvey and Maria that hit Puerto Rico, Florida and Texas during the period. Specifically, earnings per share absorbed a 4-cent reduction, while the estimated lost sales impact from the hurricanes was $20 million, or 60 basis points.)

Nordstrom declined to comment on the go-private talks.

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