Nordstrom Goes Private: A Major M&A Move

Nordstrom (JWN) has announced an agreement to be acquired by its founding family and Mexican retailer El Puerto de Liverpool in a $6.25 billion enterprise-value deal, marking a significant shift for the iconic department store chain. Under the terms of the transaction, Nordstrom shareholders will receive $24.25 in cash per share, representing a 42% premium to the stock’s price as of March 18, 2024, though the deal values the company slightly below its recent closing price of $24.53, leading to mixed reactions from investors.

The Mechanics of the Deal

The Nordstrom family, alongside Liverpool, will acquire all outstanding shares of the company not already owned by them. The Nordstrom family will hold a 50.1% majority ownership, while Liverpool will own 49.9%. Financing will be structured through a mix of rollover equity by both parties, cash contributions from Liverpool, $450 million in borrowings under a $1.2 billion ABL bank financing facility, and company cash on hand. The deal is expected to close in the first half of 2025, pending regulatory and shareholder approval.

Premiums and Controversies

The merger consideration’s touted 42% premium is based on Nordstrom’s stock price nine months earlier, before speculation about a potential deal. However, critics argue the transaction represents a “take-under” since the cash offer is lower than the recent market price of $24.53. This discrepancy highlights concerns about the valuation and raises questions about whether shareholders will perceive the offer as sufficient compensation for their investment.

Dividend Plans and Shareholder Payouts

In addition to the cash offer, Nordstrom’s board intends to authorize a special dividend of up to $0.25 per share, contingent on the deal’s closure. The company will also continue paying its regular quarterly dividend of $0.19 per share until the transaction is finalized, including a pro-rated payment for any partial quarter. These measures aim to sweeten the deal for shareholders, though they may not fully offset skepticism about the transaction price.

Board Approval and Shareholder Implications

The Nordstrom board, with Erik and Pete Nordstrom recusing themselves, unanimously approved the transaction following recommendations from a special committee of independent directors. For the deal to close, it requires approval from two-thirds of Nordstrom’s shareholders and a majority of shares not owned by the Nordstrom family or Liverpool. If the transaction falls through due to a below-investment-grade rating event, the acquiring group will owe a $100 million termination fee, adding further financial considerations to the deal. Strategic Rationale

The Nordstrom family aims to revitalize the business away from the scrutiny of public markets, betting that private ownership will provide greater flexibility. Nordstrom has struggled to recover from the pandemic, with revenue and market value declining significantly over the past decade. The company faces ongoing challenges from e-commerce competitors and shifting consumer preferences, making the take-private strategy a calculated risk to reposition the brand for long-term growth.

Liverpool’s Growing Presence

Liverpool, one of Mexico’s largest retail operators, has been steadily expanding its international footprint. The company already owns nearly 10% of Nordstrom and has made previous acquisition attempts in Latin America. Partnering with Nordstrom gives Liverpool a foothold in the U.S. retail market, aligning with its strategy to diversify beyond Mexico and gain access to a new consumer base.

Market and Industry Implications

The transaction underscores the challenges faced by department stores, which continue to lose market share to discount retailers, fast-fashion chains, and online platforms. While Nordstrom’s Rack stores have shown resilience, their performance remains inconsistent. Going private may enable Nordstrom to address these issues without the pressure of quarterly earnings reports, but the deal also highlights the broader struggles of traditional department stores in an evolving retail landscape. The deal’s success will hinge on the family’s and Liverpool’s ability to execute their vision for the business in a competitive market.