June 8, 2017 / 1:37 PM / in a month

CORRECTED-UPDATE 4-Nordstrom family explores taking retailer private, shares surge

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(Corrects paragraph 9 to show Neiman Marcus went private in 2005, not 2013)

By Nandita Bose and Gayathree Ganesan

June 8 (Reuters) - Department store operator Nordstrom Inc said on Thursday that some members of the Nordstrom family are 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 11 percent after having surged as much as 18 percent in their biggest intraday percentage gain since February 2009. The company now has a market value of about $7.4 billion.

The move comes as U.S. malls have been struggling with slowing customer traffic and as mall anchors like Nordstrom and Macy's Inc 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.

Shares of other U.S. department store chains also rose after Nordstrom's announcement. Dillard's Inc gained as much as 6.3 percent, Macy's rose 3.3 percent and Kohls Corp climbed 1.3 percent in Thursday morning trading.

Going private may help Nordstrom 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.

The exploration of going private, which could add to the retailer's debt, comes amid a wave of store closures and bankruptcies in the retail industry.

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

But going private may be slightly easier for Nordstrom, analysts said.

"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 and owns stores in Canada and Puerto Rico. It also runs Nordstrom Rack, an off-price discount clothing and accessories chain.

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 percent 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 Chuck Grom, analyst with Gordon Haskett. The ownership would appear to satisfy the requirements of a leveraged buyout transaction, he said.

Grom estimates at a share price of $46, retailer would need to raise $5.45 billion to $8.19 billion of additional debt to fund the takeout.

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

With Thursday’s stock gains, Nordstrom short sellers who had been having a profitable year took a hit.

With the stock up 11.5 percent in late morning trading, that had erased about three-quarters of the estimated $186 million gain on paper in 2017 for Nordstrom short sellers, according to financial analytics firm S3 Partners. (Reporting by Nandita Bose in Chicago and Gayathree Ganesan in Bengaluru; Additional reporting by Lewis Krauskopf in New York and Siddharth Cavale in Bengaluru; Editing by Bill Rigby and Meredith Mazzilli)

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