Funding Another Attempt to Take Nordstrom Private Would Be Tricky

Will the second time be the charm for the Nordstrom family?

Maybe, maybe not.

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Shares of Nordstrom Inc. jumped 9.4 percent to $18.66 on Tuesday after Reuters reported the company’s founding family was working with Morgan Stanley and Centerview Partners to find private equity firms interested in taking the retailer private.

The family could not immediately be reached for comment. A spokeswoman for the retailer declined to “comment on rumors or market speculation.” Morgan Stanley also declined to comment and Centerview did not return a call.

This is a movie that fashion has seen before.

The descendants of John W. Nordstrom, who cofounded the company in 1901, tried to take the department store private in 2018, offering to pay $50 a share, or $8.4 billion for the company, with the help of Leonard Green & Partners.

That offer was nixed by a special committee of the board, which said at the time that it could not reach an agreement with the family “on an acceptable price for the company.”

Hindsight is, of course, 20/20.

Even with the bounce on Tuesday, Nordstrom is trading with a market capitalization of $3 billion, less than half the offer that was rejected.

“It wouldn’t surprise me if the family wanted to try to take it private again,” said one retail source familiar with department stores. “They could very well be thinking that the stock is undervalued.…Everyone says their department stores are in trouble and lost their way, and that the Manhattan flagship has been a colossal albatross. But the problem with taking it private is that they would be taking on a lot of debt.”

The Seattle-based Nordstrom has started showing some improvements in its performance lately. In the fourth quarter, the company was lifted by improved top-line growth at the Rack off-price division. The company’s sales for the quarter rose 2.2 percent to $4.3 billion while net earnings totaled $134 million.

And Erik Nordstrom, chief executive officer, told analysts on a conference call this month that traffic did improve sequentially at the Nordstrom banner during 2023, while the Manhattan flagship has been showing “real strong growth.”

Erik Nordstrom at podium
Erik Nordstrom

The Nordstroms own about 30 percent of the company’s stock, so they would still have to come up with more than $2 billion at the current price.

Given high interest rates and the general reticence private equity has shown toward fashion and retail, that could be a significant ask.

One retail banker called it, “The longest of long putts.”

In part, that’s because private equity investors usually only make investments with a clear exit strategy so they know how they’re going to get their money back, with a hefty profit.

“I don’t think anyone wants to underwrite getting it sold or IPOed down the road in order to monetize,” the banker said, suggesting the Nordstroms need “really long dated capital” like what would come from a sovereign wealth fund or a family office.

Even so, there’s a kind of run on department stores right now.

Arkhouse Management and Brigade Capital Management are trying to buy Macy’s Inc. And Richard Baker’s Hudson’s Bay Co., which already owns Saks Fifth Avenue, is looking to buy longtime competitor Neiman Marcus Group.

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