(Bloomberg) -- The Nordstrom family is joining forces with a Mexican retailer to take its namesake department store private in an all-cash transaction valued at about $6.25 billion, including debt.
The founding family is betting that the century-old retail chain will be more successful without the scrutiny and demands of the public market after shares in Nordstrom Inc. plunged 40% in the last five years. During the same period, the Russell 1000 Index rose more than 80%.
As part of the transaction, which is expected to close in the first half of 2025, the family and Mexican department-store chain El Puerto de Liverpool SAB will acquire all of the outstanding common shares of Nordstrom. The Nordstrom family will have a majority ownership stake in the company of 50.1%, with Liverpool owning 49.9%.
Nordstrom common shareholders will receive $24.25 in cash for each share of Nordstrom common stock they hold under the terms of the agreement, the company said Monday. The equity value of the offer is equivalent to $4.2 billion, a company spokeswoman said.
The shares fell 1.5% to $24.16 at 12:11 p.m. in New York trading on Monday. The company’s stock was up 33% so far this year as of Friday’s close. Reports of a take-private deal have helped boost the stock price.
The board’s acceptance of the offer underscores Nordstrom’s subdued growth prospects. In 2018, it rejected the family’s bid to take the company private at $50 per share as too low.
Nordstrom’s annual revenue, including income from credit cards, peaked at $15.9 billion in the fiscal year ended February 2019. The company was hit hard by Covid-19 and has never returned to its pre-pandemic highs. Nordstrom is expected to report $14.9 billion in total revenue at the end of the current fiscal year, according to a Bloomberg survey of analysts.
It’s a smart time to make this take-private offer, said Morningstar Inc. analyst David Swartz. “The Nordstrom family and El Puerto de Liverpool are getting a good deal here and buying Nordstrom when its results are depressed,” he said. “I think that Nordstrom’s results are set to improve and that the insiders know this.”
‘Long-Term Decline’
By going private, Nordstrom also avoids the risk that an activist investor could push to remove executives, said Erik Gordon, professor at the University of Michigan’s Ross School of Business. Nordstrom’s management has “delivered long-term decline, not long-term value creation,” he said.
Other department-store chains in the US have also struggled as shoppers pivot to online competitors such as Amazon.com Inc., or brand-specific stores such as Louis Vuitton. Executives at Macy’s Inc., for example, are shrinking the company’s store fleet to cut costs, while the owners of Saks Fifth Avenue bought Neiman Marcus Group earlier this year.
During the past couple of years, investors had hoped that Nordstrom Rack, its off-price chain, could help buoy the company’s growth prospects and compensate for sluggish sales at the more upscale flagship chain. Shoppers flocked to competitors such as TJ Maxx, seeking deals as inflation soared post-pandemic.
But Rack’s performance has been spotty. It stumbled when executives tweaked their strategy and stopped offering as many high-end fashion brands at a discount. Rack reversed course and sales have bounced back. Company executives have focused on opening more Rack stores in recent quarters, boosting revenue.
In November, Nordstrom raised the lower end of its annual sales guidance after revenue was better than expected at Rack and the flagship chain. But the outlook is still weak, highlighting the attraction of going private: The company is forecasting that annual sales, including credit-card revenues, will be flat to up 1% versus last year.
Department stores are complex businesses and change takes time, according to Joel Bines, managing partner at consultancy Spruce Advisory. “That is much better done out of the public eye,” he said.
The Nordstrom family sent an email to customers on Monday morning explaining the take-private transaction. “This announcement marks a significant milestone, and we are excited by the potential opportunities it brings,” it said.
Financing
The take-private deal will be financed through a combination of rollover equity by the Nordstrom family and Liverpool, cash commitments by Liverpool, up to $450 million in borrowings under a new $1.2 billion ABL bank financing and company cash on hand. The board also intends to pay a special dividend of up to 25 cents a share in cash contingent on the deal closing.
The transaction must be approved by two-thirds of the company’s common stock shareholders and the holders of a majority of the shares not owned by the Nordstrom family or Liverpool.
The board unanimously approved the transaction. Erik and Peter Nordstrom, who are board members, recused themselves from the vote.
“On behalf of my family, we look forward to working with our teams to ensure Nordstrom thrives long into the future,” said Erik Nordstrom, chief executive officer of Nordstrom.
Liverpool, run by descendants of a French shareholder group that dates back to 1847, is one of Mexico’s most important department-store chains, with an ornate flagship location in the capital’s historic center. It has more than 300 stores, including 124 Liverpool department stores and 188 locations of its Suburbia apparel chain, as well as 29 shopping malls across 21 Mexican states.
While retail makes up the bulk of its revenue stream, Liverpool’s e-commerce and financial services business is growing quickly, with 7.6 million credit cardholders. Publicly-traded Liverpool has a market capitalization of about $7 billion, while Nordstrom’s stands at almost $4 billion.
The Nordstrom deal will help the Mexico City-based company to further diversify its business. Liverpool already manages the Mexico stores of more than 100 international brands such as Gap, Banana Republic, Williams Sonoma, and Pottery Barn, and it runs 56 Sfera boutiques in partnership with El Corte Inglés, a Spanish department store.
The company has also ventured beyond Mexico, acquiring a stake in Latin American retail operator Unicomer in 2011 and attempting unsuccessfully to acquire control of Chile’s Ripley SA in 2015 before turning its eyes to the US with the Nordstrom investment.
Liverpool’s third-quarter revenue rose 10% to 46.1 billion pesos ($2.3 billion). Net income also beat analyst estimates, with the company citing its efforts to manage costs.
--With assistance from Amy Stillman.
(Updates share trading and adds analyst voices and background on Liverpool.)
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