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Jun 8, 2017

Nordstrom family exploring taking retailer private

Nordstrom

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Department store operator Nordstrom Inc (JWN.N) said on Thursday that some members of the Nordstrom family were considering taking the company private as it struggles with an industry-wide sales slowdown.

Going private, which would involve raising debt, would be a risky but potentially profitable bet by Nordstrom's founding family and largest shareholder bloc that the company can reshape itself and emerge from the retail meltdown stronger.

Shares of the Seattle-based clothing and accessories retailer were last up 10.5 per cent at mid-afternoon after having surged as much as 18 per cent in their biggest intraday percentage gain since February 2009. The company has a market value of about US$7.4 billion.

U.S. malls have been struggling with slowing customer traffic and mall anchors like Nordstrom and Macy's Inc (M.N) are trying to revive sales.

Nordstrom in May reported first-quarter same-store sales that fell short of estimates, triggering a drop in its shares.

Once it goes private, Nordstrom may be able to restructure its business, which is more difficult as a public company, said Erich Joachimsthaler, chief executive of Vivaldi, a consulting firm that works with retail brands. "It's the right move," he said.

At a share price of US$46, the retailer would need to raise US$5.45 billion to US$8.19 billion of additional debt to fund the takeout, said Chuck Grom, analyst with Gordon Haskett. Such a move would come amid a wave of store closures and bankruptcies in the retail industry.

High-end department store chain Neiman Marcus, which went private in 2005, said in March it is exploring options as it seeks relief from its swelling debt pile.

Analysts and consultants were divided on how successful Nordstrom could be in going private.

UBS Group AG analysts said in a report that they were cautious about Nordstrom's ability to secure financing given problems in the retail sector. They also flagged a bid by the founder of electronics retailer Best Buy (BBY.N) to take the company private that failed in 2013 when he was unable to raise US$2.5 billion-US$3 billion in debt.

Other analysts said that going private may be slightly easier for Nordstrom.

"Nordstrom is not highly levered, they have quite a bit in their way of real estate assets so is it probably easier for them to actually get this transaction done," said Jan Rogers Kniffen, chief executive of retail consultancy J. Rogers Kniffen WWE.

Founded in 1901 as a shoe store in Seattle, Nordstrom went public in 1971. The retailer, known for its high-end department stores and customer service, sells designer items including Jimmy Choo stilettos and Burberry trench coats.

Nordstrom operates 354 stores in 40 states which includes its Nordstrom branded full-line stores and off-price discount chain Nordstrom Rack. The company also operates stores in Canada and Puerto Rico.

Shares of other U.S. department store chains rose after Nordstrom's announcement. Dillard's Inc (DDS.N) gained as much as 6.3 per cent, Macy's rose 3.3 per cent and Kohls Corp (KSS.N) climbed 1.3 per cent early Thursday. The stocks pared gains in afternoon trade.

TAKING IT PRIVATE

In a filing with the U.S. Securities and Exchange Commission, the department store operator said the group formed to consider going private had not made a formal proposal.

The group comprises Chairman Emeritus Bruce Nordstrom, his sister Anne Gittinger, President James Nordstrom and co-Presidents Blake, Peter and Erik Nordstrom.

The group, which owns 31.2 per cent of the company, said it was not interested in selling its stake to third parties or voting for an alternative deal.

With the Nordstrom family's share ownership, the odds of a deal getting done are higher, said Grom with Gordon Haskett. The ownership would appear to satisfy the requirements of a leveraged buyout transaction, he said.

The largest shareholders in the company from the group include Bruce Nordstrom with 16.9 per cent of outstanding shares, followed by Gittinger with 9.3 per cent, according to Thomson Reuters data. Peter and Blake Nordstrom own about 1.7 per cent each.

"Because of the changing dynamics in the retail environment, the group is evaluating whether the long-term interests of the issuer (Nordstrom) are better served as a privately held company," the members of the Nordstrom family said in a filing.

The company's board has formed a committee of independent directors to explore the possibility of any transaction that could be made by the group.

The committee said it had entered into an agreement with the Nordstrom family members over some standstill provisions that would prevent them from taking certain actions until Jan. 31, 2019.

The special committee has hired Centerview Partners as its financial adviser and Sidley Austin as legal counsel.

Nordstrom short sellers who had been having a profitable year took a hit on Thursday, by late morning losing about three-quarters of their estimated US$186 million gain on paper in 2017, according to financial analytics firm S3 Partners.