Nordstroms try nabbing Nordstrom for no premium

Normally, when an interested party wants to take a public company private, they offer to purchase the company at a premium to its current valuation. The reasons for the premium can vary, but two common ones are that a strong premium discourages competing bids, and management teams are more likely to reject offers that they perceive as too low. Take Elon Musk’s bid to buy Twitter, for example: he offered to purchase all outstanding shares at an 18% premium to the stock’s closing price from the day before.

Another example is Macy’s. On December 10, 2023, an investor group led by Arkhouse Management and Bridge Capital Management offered to acquire Macy’s for $5.8 billion, or $21 per share, which was a 32% premium to the retailer’s stock price from the previous trading day’s close. After Macy’s board rejected the offer, the bidders raised their price to $24 per share, then $24.80, but Macy’s board ultimately rejected these offers as well, stating that “it was unclear that the investors could finance a deal and it was not in shareholders’ best interest.”

The prevalence of the “acquisition premium” makes the details of a recent offer for another clothing retailer especially interesting:

The Nordstrom family and Mexican retailer El Puerto de Liverpool, who collectively own 44% of the company, made an offer Wednesday to purchase all outstanding shares of the company for $23 per share.

Nordstrom’s closing price on Tuesday? $22.78. And the stock closed above $23 as recently as July 18 of this year. The acquisition premium here is effectively $0. Per Bloomberg, Morningstar analyst David Swartz said that the board might reject the bid for being too low.

For context, in April, after the Nordstrom family announced that it was looking to take its retail chain private, the company’s board formed a “special committee of independent and disinterested directors,” which did not include board members Erik and Pete Nordstrom, to “carefully evaluate any proposal from Erik and Pete Nordstrom” and other parties. This is the first of such offers since the formation of the special committee, but it’s not the first time the Nordstrom family tried to take its company private.

In 2017, the Nordstrom family looked to take the company private at $48 to $50 per share in what would have been a ~$10 billion leveraged buyout with PE firm Leonard Green & Partners, but the deal failed because they 1) struggled to raise enough debt and 2) offered too low of a price to shareholders. To quote The Wall Street Journal from 2018:

“This should not be a take under situation,” said Tony Scherrer, director of research at Smead Capital Management, which owns nearly 900,000 Nordstrom shares. “It seems like they want to pay a zero premium, and that seems like a tough place from which to negotiate. I would think they would want shareholders to applaud them on their way out the door.”

The special committee said it had directed its advisers and company management to not allow the group to conduct further due diligence unless it “promptly and substantially” improves its offer.

Seven years later, while the debt issue is less relevant (the 2017 deal would have required $7 to $8 billion in financing, compared to $250 million in this one), the Nordstrom family is, once again, hoping the board will bite on a lowball bid. While the $50 bid from seven years ago looks like a missed opportunity with the stock down more than 50% since then, it’s going to be tough for a board to agree to a take-private deal with $0 upside for current shareholders, especially considering their special committee was formed to explore “possible avenues to enhance shareholder value.”