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Nordstrom’s owners reportedly choosing Leonard Green as financial partner

The family-run department store chain would be close to choosing private equity firm Leonard Green & Partners as their financial partner.

People familiar with the matter quoted by the CNBC said Tuesday that Leonard Green would provide the Nordstrom family members with circa 1 billion dollars in equity to help fund the company’s privatization.

The family group, which owns 31.2 percent of the retailer, said in June it was looking to take Nordstrom private and has since then been understood to have been looking for a private equity partner to help support the deal and also held talks with KKR and Apollo. The Nordstrom family members — company Co-Presidents Blake Nordstrom, Peter Nordstrom and Erik Nordstrom; President of Stores James Nordstrom; Chairman Emeritus Bruce Nordstrom; and Anne Gittinger, granddaughter of Nordstrom co-founder John Nordstrom — had not made any proposal yet, the company said then.

“We’re cautious about a department store’s ability to secure a bid of this magnitude given the structural headwinds facing the sector today,” UBS analysts wrote in a research note issued on June, 8. “Five years ago, Best Buy went down a similar path looking for 2.5-3.0 billion dollars and was unable to secure the full funding.”

Nordstrom thought to be in talks with banks to raise 7-8 billion dollars in debt to finance deal

The terms of the agreement remained private, according to the same sources, which also pointed out that the Nordstrom family is in conversations with financial institutions to raise between 7 billion and 8 billion dollars in debt to finance the deal.

It’s worth recalling that this wouldn’t be the first collaboration between Nordstrom and Leonard Green, as the private equity firm holds a stake in Topshop, which has a partnership with the Seattle-based department store.

A group of analysts led by Michael Binetti at UBS Investment Bank estimated when Nordstrom’s seek for a financial partner was made public in June that the family would need to raise 4-4.5 billion dollars in external capital, assuming a final stock price of 50 dollars a share and backers from the private equity world contributing 1.5 billion dollars of the total buyout.

Market experts point out that regardless the outcome of these negotiations, a leveraged buyout of a department store remains a challenging option. The same sources highlight how private equity backed-retailers such as Payless ShoeSource and Gymboree have struggled despite the cash injections, having to file for bankruptcy earlier this year. Meanwhile, upscale department store operator Neiman Marcus is working with restructuring advisors.

Nordstrom’s stock has been on a valuation roller coaster this week, sliding as much as 5.4 percent to 43.59 dollars on the news.

Nordstrom operates 356 stores, including 121 full-line stores in the United States, Canada and Puerto Rico. Out of those, 221 are Nordstrom Rack stores.

At the close of this edition, Nordstrom has not commented on these reports.

Image credits:Nordstrom Corporate Web