DALLAS (Reuters Breakingviews) - Nordstrom insiders have chosen a good time to consider taking the business out of the public eye. A modestly leveraged buyout of the $7.6 billion U.S. clothing seller – recently most famous for dropping first daughter Ivanka Trump’s clothing line – looks doable with members of the eponymous family rolling over their stakes. The growing list of retailers struggling with debt should sound a note of caution, though.
The shopkeeping sector’s troubles, including dwindling foot traffic in malls, have taken their toll and before Thursday’s pop following news of the family’s take-private interest, Nordstrom’s shares were down 16 percent this year. Still, the company is in better shape than Macy‘s, for example, which is closing a raft of stores.
Tough action to weather the downturn could be easier to implement without the quarterly earnings treadmill. And the weakened share price helps the numbers add up for the Nordstrom family and any partners they bring in. Suppose they offer a 30 percent premium to Wednesday’s closing price of $40.48 a share. That would value the existing equity at $8.7 billion. Add $2.1 billion of net debt, and the total buyout value would be $10.8 billion.
A debt-to-EBITDA ratio of four times would be fairly restrained for a buyout. Assume that’s doable. Using the just over $1.6 billion consensus estimate from Eikon for EBITDA in the financial year to next January, debt could cover some $6.5 billion of the deal price.
That leaves $4.3 billion of needed equity – but with family members owning more than 30 percent of Nordstrom’s stock at present, rolling over their stakes at the buyout price would account for over 60 percent of that, Breakingviews calculates. They’d need about $1.6 billion of additional cash, a manageable check for a private-equity partner to write provided the family’s plans for the company over the coming years looked lucrative enough.
Though a leveraged deal is feasible, the Nordstroms need to play it carefully. A slew of retailers, including J.Crew and Neiman Marcus, are running into financial difficulties after years of private-equity ownership and burdensome borrowing that have stripped them of cash reserves and operational flexibility. An aggressively tailored structure would be risky. That aside, though, Nordstrom could be well suited for a buyout.
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