It’s open season on America’s struggling department stores.
Nordstrom this week adopted a “poison pill” measure that allows the retailer to fend off the possibility of a hostile takeover — a common fear among struggling retailers that become attractive targets for investors when their stock prices fall.
The Seattle-based chain had reason to be paranoid, with the move coming just days after Mexican department store chain Liverpool bought a 9.9 percent stake in the retailer worth about $294 million, effectively becoming its second-largest shareholder after seven and Nordstrom. .
Liverpool said the purchase was the result of additional cash and a desire to “geographically diversify assets”.
However, such a large part of the company requires a certain level of protection from management. The shareholder poison pill plan allows Nordstrom to issue new shares at a 50 percent discount to other major shareholders if an outside party acquires 10 percent or more of Nordstrom’s stock without board approval.
This makes it more difficult to initiate a takeover because if other shareholders buy additional shares at a significant discount, the pursuer’s stake will be diluted.
“At the end of the day, when a company uses a poison pill, the headache and costs increase significantly for a potential hostile takeover,” said Simeon Siegel, retail analyst at BMO Capital Markets.
Nordstrom said the plan, which expires next September, was not in response to “any specific takeover bid” or other acquisition proposals. The measure also “is not intended to deter offers that are fair and otherwise in the best interests of all Nordstrom shareholders,” the company said in a press release.
A successful hostile takeover would be particularly painful for the Nordstrom family, which has tried and failed to take the company private twice, in 2017 and 2018.
Nordstrom’s cold war with Liverpool isn’t the only ongoing battle for control of a major US department store chain.
On Thursday, investment firm Ancora Holdings sent a letter to the board of Kohl’s urging the company to replace its chief executive, Michelle Gass, and chairman, Peter Boneparte. Kohl’s, which faces stiff competition from Amazon and big box stores for the wallets of middle-class consumers, has drawn a lot of unwanted attention this year.
In February, Kohl adopted a poison pill plan to fend off activist investors in Acacia Research Corp., an entity backed by hedge fund Starboard Value, which offered to buy the department store a month ago. Kohl’s also received an offer from private equity firm Sycamore Partners, according to market reports. The department store then said, without naming specific suitors, that the offers were undervalued by its business.
While the poison pill has stalled acquisition talks at Nordstrom and Kohl’s, it hasn’t stopped speculation about the future of both companies. Both will need to prove to the market that their turnaround plans can work; otherwise, shareholders may decide that a private placement or even a partial sale is the best option.
It’s not like these companies were asleep at the wheel. Prior to Covid-19, Nordstrom introduced new store formats, including Nordstrom Local, a fleet of small stores that do not sell any merchandise but are designed for online pickup and other services. Kohl’s is trying to increase traffic by accepting Amazon returns and opening a Sephora shop-in-shop.
More realignments may be needed, though it’s doubtful that Liverpool, Starboard or Anchorage have any better ideas.
Nordstrom is struggling to restore sales to pre-pandemic levels. In 2021, its revenue was $14.4 billion, up from $15.1 billion in 2019. In its latest quarterly earnings report, Nordstrom lowered its full-year 2022 forecast, citing weaker consumer demand and pressure on margins from excess inventory. The stock has fallen about 20 percent this year, roughly in line with the S&P 500 index.
Kohl’s also lowered its outlook for the rest of the year in its second-quarter earnings report, citing similar factors as Nordstrom. In the first half of 2022, Kohl’s revenue was lower than in 2021 and also in 2019. Last year, net sales were $18.5 billion, down from $18.9 billion in 2019. In 2022, its shares fell by 45 percent.
Both companies are sure to argue that they just need more time to show that their strategies are working. Recent events indicate that they may not have it.
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Compiled by Darcy Sergison.
https://www.businessoffashion.com/briefings/retail/what-nordstroms-poison-pill-says-about-the-state-of-us-department-stores/ What Nordstrom’s pill says about the state of US department stores