CHICAGO/NEW YORK (Reuters) - Nordstrom Inc's (JWN.N) founding family could face a drawn-out search for backers to help it take the retailer private as investors shy away from brick-and-mortar department stores under assault from Amazon.com Inc (AMZN.O) and other online competitors.
Any plan to go private would likely require the company to raise as much as $4.5 billion in outside capital and an additional $1.5 billion in private equity, according to UBS retail analyst Michael Binetti.
Finding that much money could be difficult as the department store sector faces its greatest test since last decade's financial crisis.
"While the ownership structure could allow the Nordstrom family to be more forceful in pushing toward a privatization, we're cautious about a department store's ability to secure a bid of this magnitude given the structural headwinds facing the sector today."
Nordstrom has a market value of $7.4 billion after its shares surged on Thursday following the company's announcement that a group of family members was looking at taking the company private. The group together already owns about 31 percent of the company.
The upscale Seattle-based clothing and accessories retailer, like most rivals, has struggled to grow earnings in recent years as consumers do less shopping at big malls in favor of more specialized stores or buying online.
As a result, the assets of physical retailers - including stores, leases and warehouses - are losing value, making it difficult to structure a deal, said Neil Saunders, managing director at retail research firm GlobalData.
"Even though Nordstrom is doing better than others, department stores are under pressure so the value of the assets they've got against their debt could decline," he said.
The option of going private has had mixed success in the retail sector. Mervyn's and Linens 'n Things took bankruptcy protection after private equity-led buyouts. Lululemon Athletica Inc (LULU.O) and Dollar General Corp (DG.N) fared better.
Kathy Gersch, a former Nordstrom vice president who now works as a retail industry consultant at Kotter International, said Nordstrom's long family history might help it find an investor.
"I think financing this kind of deal could be potentially attractive, where they know the family have their own money in it and they understand the business," she said.
Investment banking sources said value-oriented private equity investors might see the industry's difficulties as a good opportunity to take a gamble on Nordstrom, with its rich family history, as opposed to rivals such as Macy's Inc (M.N).
The family made it clear in a Securities and Exchange Commission filing on Thursday that it would consider no other transactions, essentially ruling out a merger with another retailer.
"Flexibility is one of the key thoughts behind the family wanting to bring the company back into private control," Saunders told Reuters, given the company would likely find it easier as a private company to restructure operations or invest in e-commerce.
Reporting by Richa Naidu and Lauren Hirsch; Editing by Bill Rigby