Nordstrom, the renowned U.S. luxury department store chain, is set to become private once again following the announcement of a major buyout agreement valued at $6.25 billion. The acquisition will be led by members of the Nordstrom family alongside the Mexican retail company El Puerto de Liverpool. This strategic move is seen as a way for the family to take greater control over the brand's direction without the pressures and scrutiny of the public market.
The transaction, which the Nordstrom board approved unanimously, will mean common shareholders receive $24.25 for each share they currently hold, representing approximately 42% premium over the stock's value when acquisition rumors first sparked at the end of March 2024. A special dividend of up to $0.25 per share will also be issued, contingent on the deal’s successful completion.
Nordstrom CEO Erik Nordstrom expressed optimism about this new chapter for the business, stating, "For over a century, Nordstrom has operated with a foundational principle of helping customers feel good and look their best. Today marks an exciting new chapter for the business. On behalf of my family, we look forward to working with our teams toensure Nordstrom thrives long intothe future." The acquisition is expected to close within the first half of 2025, pending the necessary regulatory approvals and the consent of two-thirds of common stockholders, excluding family members and Liverpool affiliates.
This move is not entirely unprecedented for Nordstrom, which has previously explored becoming private; concerns about stock undervaluation have driven such discussions before. The family had expressed interest as recently as 2018, though earlier attempts fizzled out due to financial hurdles. The situation has changed dramatically, as Nordstrom’s stock has plummeted by roughly 40% over the past five years, contrasting sharply with the overall Russell 1000 Index’s surge of about 80% during the same period.
David Swartz, Senior Equity Analyst at Morningstar, commented on the acquisition's significance, noting, "Investors just are not giving good valuations to department store companies right now." The buyout will allow the Nordstrom family to implement necessary changes without the immediate pressure of quarterly earnings reports often demanded by public investors. By becoming private, Nordstrom aims to focus on long-term investments and strategic improvements, particularly with its Nordstrom Rack division, which serves as the company’s off-price retail brand.
El Puerto de Liverpool will hold 49.9% ownership post-acquisition, which adds substantial heft to the deal as Liverpool is one of Mexico’s biggest retail forces with over 300 stores. Their e-commerce presence is also rapidly growing, providing a platform for Nordstrom to expand its reach beyond U.S. markets. This partnership highlights possibilities for shared expertise and resources, likely accelerating Nordstrom's shift toward e-commerce solutions.
The transaction is being fund through various means, including equity contributions from the Nordstrom family and equity partners, cash from Liverpool, and potential bank loans totaling around $450 million. Notably, Nordstrom’s existing debts, amounting to approximately $2.7 billion, will remain intact following the buyout.
For its part, Nordstrom has faced challenges corresponding to changes within the retail industry. Shifting consumer behavior, particularly a move toward online shopping, has pressured traditional retailers to adapt or risk obsolescence. This acquisition will provide Nordstrom with the freedom to approach these challenges without the constraints of public market expectations.
Reflecting on the deal, experts believe it could mark a pivotal transition for Nordstrom within the shifting retail environment. Jonathan Boling, founder of Telsey Advisory Group, pointed out, "A lot of these operational changes take time and can be costly. Going private enables the leadership to take the necessary steps without the oversight of shareholders eager for short-term gains. For struggling retailers, it’s definitely always considered."
Erik Nordstrom and his brother Pete are expected to remain as CEO and President, respectively, ensuring leadership continuity through this significant transition. This continuity might serve to conserve the company’s established values and service ethos as they navigate their restructured operational strategy.
With the anticipated conclusion of the deal, it remains to be seen how Nordstrom will evolve moving forward. The retail sector is observing closely, curious if this bold initiative will usher the brand toward renewed growth and resilience amid modern marketplace challenges. The Nordstrom family certainly aims to capitalize on their longstanding legacy and consumer loyalty to steer the company to success, hoping to thrive long-term by taking it private.
