Remember Nordstrom Inc.’s JWN family was planning to take the company private? Well, it might just happen soon. Evidently, on Sep 12 there were news that Nordstrom’s family is in talks with Leonard Green & Partners to help fund the transaction. Though the deal wasn’t confirmed but the news sent shares of this fashion specialty retailer up by nearly 10% in the after-market trading session.
This was clearly a respite for investors who have long been worried about Nordstrom’s ability to cope up with the evolving consumer trends and the mounting competition from e-commerce giant, Amazon.com Inc. AMZN. Owing to these concerns, the stock has lost 3.7% so far this year, though it performed better than the industry’s slump of 27.2%. If yesterday’s news could drive such positive sentiments among investors, it is to be seen how the stock will actually react if the plans are put to action.
The Plan in Details
Sources revealed that Leonard Green, which is a private equity firm, is likely to provide equity worth nearly $1 billion to Nordstrom’s family, to fund the buyout. Apart from this, the family is also trying to raise debt of roughly $7-$8 billion from banks. In fact, per the sources, the family, which currently owns about 31% stake in the company, might come up with a formal proposal in the next two weeks.
The Nordstrom family comprises the company’s three Co-Presidents — Blake W. Nordstrom, Peter E. Nordstrom and Erik B. Nordstrom; President of Stores — James F. Nordstrom; Chairman — Emeritus Bruce A. Nordstrom, and Anne E. Gittinger, together. It was in June when the Seattle-based company first announced that the family (“Group”) is seeking viable options of taking the company private, by buying all the outstanding shares of Nordstrom.
Ever since then, the Group has been looking for potential sponsors. Apparently, the family also had talks with Apollo Global Management LLC and KKR & Co LLP to help the deal pass through. However, the final terms with Leonard Green are not confirmed yet, and it is quite likely for Nordstrom’s family to face interruptions from other parties in the process.
Can Going Private Help Nordstrom Battle the Hurdles?
Nordstrom is no different from other retailers who are trying all means to stay afloat in the challenging retail landscape. With consumers’ accelerated transition to the dot.com world, store traffic has been hit hard. Consequently, retailers are quickly resorting to e-commerce development, alongside closing underperforming stores. Apart from Nordstrom, big-wigs like Macy’s Inc. M, Target Corporation TGT and Wal-Mart Stores Inc. WMT are few among the many retailers who are firing on all cylinders to catch up with the online rage, thanks to Amazon’s rising dominance.
That said, going private could be a prudent move for Nordstrom’s family, as it will help them reshape the organization and overcome the retail hurdles faster, which is not that easy as a public entity. As a private firm, it will be easier for Nordstrom to make the required investments as per the changing consumer trends, without caring much about stockholders’ short-term responses.
Concurrent to its first announcement of plans to go private, Nordstrom stated that its board of directors have organized a special committee. This “Special Committee” that consists of Nordstrom’s independent directors, will act on the company’s behalf on anything related to the aforementioned privatization. While any formal proposal is still pending, sources revealed that this Special Committee will evaluate the deal terms in case of any offer.
Nordstrom currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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