Nordstrom warns shareholders of 'going private' risks
Nordstrom warned investors of the potential effects of a “going private transaction” on Tuesday in its most recent 10-Q filing with the Securities and Exchange Commission, which also detailed its second quarter and half-year financial results.
“The exploration of a possible 'going private transaction' by the Nordstrom family could impact our relationships with our customers, employees, suppliers and partners, operating results and business,” according to the filing.
In June, Nordstrom family members formed a group to explore going private, though the company noted in the filing that no proposal has been made and may never be made. The company has no plans to disclose updates until a Special Committee of its board deems further disclosure is appropriate or required, the company also said. “Accordingly, speculation regarding any developments related to the review of a Going Private Transaction and perceived uncertainties related to our future could cause our stock price to fluctuate significantly,” the company warned in the filing.
Ever since early summer when Nordstrom revealed it was exploring taking the company private, speculation has indeed swirled. Right away the department store retailer collected a few downgrades from analysts, though several others have hailed the move as a way for the company to regroup amid a devastated department sector.
Skittishness on Wall Street over the possible move is precisely one reason for it, some say. The time and space needed for bold moves in a turnaround can be difficult to come by as public investors clamor for growth on a quarterly basis. “[Wall] Street expects positive results quarter by quarter, which even in the best of times is often unrealistic,” Mark Cohen, director of retail studies at Columbia University's Graduate School of Business, told Retail Dive earlier this year. “Let alone times when the industry at large is in turmoil, or a specific retail company is in some form of turnaround or transition. Going private, assuming it did not entail taking on a crushing level of debt, may very well be the best thing that could happen to Nordstrom.”
Going private makes particular sense for a retailer that, while it has faltered in recent quarters, isn't piled with a lot of debt and has operations with value buried deep within the wider company. A private restructuring would likely take Nordstrom three to five years, Howard Davidowitz, chairman of New York City-based retail consulting and investment banking firm Davidowitz & Associates, told Retail Dive.
“Even though the family’s in control, if you’re a public company, you still have obligations to the other shareholders," he said. "So if some guy comes in and is able to get control of 4% of your stock, he can make a lot of noise. You’d be surprised, even though they’re in control, it can get very messy. This way, you’re insulated from the madness and you can focus on your business. You don’t have to worry about your shareholders or private equity buying up your shares and harassing you. You avoid that and you stick to what you know needs to be done.”
Last week Jeff Glueck, CEO of location intelligence company Foursquare, made waves with speculation of his own, which he said is grounded in Foursquare's data, that Nordstrom could be a takeover target by Amazon or Walmart. Each would benefit from Nordstrom's reputation for customer service, its wealthier and increasingly younger customer demographic, its robust off-price Rack business and its acquisition strategy, which has garnered valuable insights about cutting-edge retail models, observers told Retail Dive about that idea.
One issue for the family to avoid, however, is becoming over-insulated, Kathy Gersch, EVP at strategy execution and change management firm Kotter International and a former Nordstrom executive, told Retail Dive. “As they go private and as they become internally-focused, they’ll want to bring in outside points of view,” she said. “You don’t always want to think the family knows best. They’ll want to balance that in a different way, with an external board and other ways to bring in that external view.”
- Securities and Exchange filing Nordstrom Form 10-Q
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