(Bloomberg Gadfly) -- Are Nordstrom Inc. shareholders going to be left holding the bag?
Late Monday, the retailer's independent board rejected an indicative offer from its founding family, backed by Leonard Green & Partners LP, that values it at around $8.4 billion. The rebuffed $50-a-share cash proposal was for the roughly 69 percent of shares not already owned by the family, as well around a fifth of their existing holdings.
The department-store chain's shares -- which have averaged a touch over $50 apiece in 2018 -- declined in early trading Tuesday. They didn't fall by much, though, indicating widespread belief that the Nordstrom family's first offer won't be its last (and, too, the stock remained above the initial $50 proposed price). A sizable stake arms the family with more motivation to seal a deal, so it's a fair bet that they'll return with a sweetened proposal. For a recent example, one need look no further than AmTrust Financial Services Inc. The company last week agreed to be acquired by a consortium comprising the founding Karfunkel family, its CEO and private equity firm Stone Point Capital. In that case, the group ended up lifting its offer for the 57 percent of shares it didn't already own to $13.50 a share from $12.25.
In the event that the Nordstrom family isn't dabbling in gamesmanship, shareholders may rue the swift rejection. Analysts on average have a $51.38 price target over the next 12 months, which isn't too far off the spurned offer. And although the proposed price is lower than Nordstrom's closing price on Monday, $50 still represents a fairly healthy 23.5 percent premium to where the shares were trading last summer, before the family announced they'd explore a management buyout. Still, there is wiggle room to go higher: The offer implies an enterprise value to Ebitda multiple of 6.2, a fraction below the Seattle-based company's five-year average of 6.6, according to data compiled by Bloomberg.
If an improved offer doesn't land, which is possible if banks can't lift their financing commitments, management will have a tall order eking out more value for shareholders in an ailing industry beset by competitive pressures. Rival Macy's Inc. saw its stock close higher last week when it reported its first quarterly comparable sales increase in three years, with investors apparently feeling reassured that the company had finally made some progress in its turnaround effort. But later in the week, shares of Kohl's Corp. took a beating on the day it reported its best quarterly comparable sales growth since 2001. Apparently, in that case, more focus was put on the modest growth forecast for the year ahead than on the sales performance during the crucial holiday season. As for Nordstrom, its stock see-sawed after the company released mixed results, initially plunging before gaining back ground and then some.
It's true that Nordstrom isn't quite in the same boat as Macy's and Kohl's and commands a slightly higher valuation, given its more affluent customer base and well-developed off-price business. But at the end of the day, it's still a department store, and there's no denying investors are skittish about the future of this format. If the board can squeeze out a couple of extra bucks or more from the founding family, taking the bird in hand may be the most prudent course of action, and the best result for shareholders.
--Tara Lachapelle contributed the Magic Number graphic
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.
Sarah Halzack is a Bloomberg Gadfly columnist covering the consumer and retail industries. She was previously a national retail reporter for the Washington Post.
To contact the editor responsible for this story: Beth Williams at bewilliams@bloomberg.net.
©2018 Bloomberg L.P.
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