What Going Private Means to Nordstrom

Can Nordstrom Inc. restore its luster of years ago?

That’s the basis for the storied, Seattle-based Nordstrom’s plan to go private and get out from under the glare of Wall Street. The $4 billion offer has been approved by its board of directors and the transaction is expected to close sometime in the first half of 2025.

The Nordstrom family along with Mexican retailer El Puerto de Liverpool will buy up all of the shares they do not own, with the family emerging with 50.1 percent of the business and Liverpool owning 49.9 percent. Currently, the Nordstrom family owns 33 percent and Liverpool owns 10 percent.

Once privatized, Nordstrom isn’t expected to diverge much from its current priorities involving aggressive expansion of the Rack off-price chain, digital growth and comp gains at the Nordstrom upscale department store business. So far the strategy has born some fruit. Nordstrom did report a third-quarter drop in net earnings, but there were increases in operating profits and sales revenues that surpassed Wall Street expectations.

For a long time, Wall Street has taken a dim view of Nordstrom and most department stores. Nordstrom’s Manhattan flagship has been gaining popularity but the company spent far more than it initially expected to on building the store, which had the unfortunate timing of opening just before the pandemic hit.

On Monday, when Nordstrom said its board had approved the plan to go private, retail experts speculated the retailer will accelerate investments in merchandise improvements and store upgrades, including possibly the Manhattan flagship. They also expect Nordstrom to take more fashion risks.

“Nordstrom has, by no means, been one of the weakest performers in the department store space. However, neither is it the business that it once was, and a lot of change and investment is needed to remedy recent missteps with merchandising, operations and store standards,” Neil Saunders, managing director of GlobalData, commented in a note released on Monday.

“The family has the talent and ability to enact change, as does El Puerto de Liverpool,” Saunders added. “They will likely run the business as a retailer rather than as some kind of financial plaything which, in our view, is a very positive thing for the long-term health of the brand. While a change in ownership does not automatically remedy all of the problems with the department store operation, it will allow the family and their backers to take a long-term view of the business and make necessary investments and changes away from the short-term scrutiny of public markets.”

“We believe key long-term growth drivers include the return of Nordstrom Rack unit growth, improved merchandising at Nordstrom, continued omnichannel execution, and supply chain cost optimization,” Jefferies Equity Research indicated in a report.

“Going private will allow the Nordstroms to think more long-term and relieve them from having to satisfy Wall Street every quarter,” said one former retail CEO. “They will be able to make the proper investments for the future of the company. But as a public company, there’s been too much deferral of maintenance and remodeling of stores and keeping your fleet up to date.” As a public company, “If you reinvest in your assets, you can get penalized by Wall Street since it hurts the bottom line, short-term, but you have to do that to keep the company current.”

Nordstrom will save time and money once turning private by no longer having to produce quarterly reports, and stage conference calls and meetings with investors. They’ll deal with less scrutiny, far fewer stakeholders and regulatory requirements, and can be more decisive with a smaller constituency to report to. They’ll have more time to focus on long-term strategy, plus private companies can be less transparent so competitors know less about what they’re up against.

Yet Nordstrom does take on more debt by going private. Nordstrom said the transaction 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 asset-back loan, and company cash on hand. Nordstrom has $2.7 billion in debt. At the $24.25 per share price in the deal, the equity value amounts to $4.1 billion and the enterprise value, including debt, comes to $6.3 billion.

Liverpool will have a seat on the board, and will be influential on how Nordstrom evolves. “I believe Liverpool just sees this as a good investment, at least for now, but they may see it as a way to some day acquire the whole company,” said the retail source.

The partners could also help each other add some brands to their offerings that they don’t already carry, though Liverpool stores have more moderate assortments. “Through Nordstrom, Liverpool might be able to get introductions to brands like Alo or Vuori,” said another industry source.

Experts don’t see the partnership leading to Nordstrom expanding to Mexico, or Liverpool entering the U.S. with stores. Liverpool operates across Mexico with 310 stores under the Liverpool and Suburbia banners, 119 specialized boutiques, as well as 29 shopping centers. Liverpool has 78,000 employees.

Nordstrom, founded in 1901 as a shoe retailer, operates 93 Nordstrom department stores, about 300 Rack off-price stores, and six Nordstrom Locals, which operate as service hubs. The retailer has been able to maintain its reputation for superior service while losing some of its merchandising edge in recent years.

If Nordstrom gets fully back on track, and it will take some time, the family could decide to take the company public again and make a lot of money off the sale of shares back in an initial public offering. It’s not all that unusual for companies to go public, turn private and go public again. Nordstrom went public in 1971.

“Nordstrom needs to invest in its stores over a multiyear period, and the public markets would not have been supportive of this,” said the former senior retail executive. “The only way to secure the business is to take it out of the public realm. Nordstrom may never go public again. They feel the public markets don’t understand the ups and downs of the retail business.”

Nordstrom will continue to operate with Erik Nordstrom at the helm as chief executive officer, his brother Pete Nordstrom as president and chief brand officer, and their cousin Jamie as chief merchandising officer.

“If you have the same leadership team I don’t know that it changes the direction of the company or the strategies. The team there has done a good job improving the Rack business,” said one retail industry consultant. The Nordstroms have been able to improve Rack by placing a greater focus on better brands at the off-pricer, including some of the better-selling labels that can found at the Nordstrom full-price department stores.

“The key going forward is to get the main department store business growing again,” said the consultant. “But department stores are a tough place to be in and Nordstrom has got to provide a differentiated merchandise assortment to continue to attract customers.”

Nordstrom said Monday that the deal to go private is an all-cash transaction with an enterprise value of about $6.25 billion. The announcement confirms a Dec. 18 report in WWD that the deal was imminent.

Nordstrom common shareholders will receive $24.25 in cash for each share of common stock they hold. The deal represents a premium of about 42 percent to the company’s unaffected closing stock price on March 18, which was the last trading day prior to media speculation about the potential transaction.

“For over a century, Nordstrom has operated with a foundational principle of helping customers feel good and look their best,” said Erik Nordstrom in a statement. “Today marks an exciting new chapter for the business. On behalf of my family, we look forward to working with our teams to ensure Nordstrom thrives long into the future.”

“We’re grateful to the employees, customers and shareholders who have shaped Nordstrom into the company it is today,” Pete Nordstrom said in a statement. “Since our founding in 1901, we have been committed to providing our customers with the best possible service — and to improving it every day. We look forward to building on that commitment in this next phase of the company’s evolution.”

“Nordstrom is one of the worldwide leaders in department store retailing, and we’re thrilled to be investing in a company that has meaningfully shaped the industry for nearly 125 years,” said Graciano F. Guichard G., executive chairman of the board of Liverpool. “We are honored to partner with the Nordstrom family and the company’s talented team as they continue to deliver outstanding service to customers.”

The board approved the deal upon the recommendation of a special committee of independent directors that conducted a review of the transaction proposal submitted earlier this year. The transaction is expected to close in the first half of 2025, subject to regulatory and other conditions, including approval of holders of two-thirds of the company’s common stock and the holders of a majority of the shares of the company not owned by the Nordstrom family or Liverpool or their respective affiliates and the company’s directors, and Section 16 company officers who are those required to disclose their beneficial ownership of the company’s equity.

“The special committee of the Nordstrom board of directors reviewed this proposal against the company’s stand-alone prospects for growth,” said Eric Sprunk, chairman of the special committee, in a statement Monday. Sprunk said the deal offers “greater value for all public shareholders at a significant premium to the unaffected share price.”

Also, common shareholders will receive a special dividend of up to 25 cents per share based on cash on hand at the close of the transaction. Nordstrom stock closed Monday at $24.53.