What Nordstrom’s ‘Poison Pill’ Reveals About the State of America’s Department Stores

It’s the season for struggling US department stores.

This week, Nordstrom adopted a “poison pill” measure, which allows the retailer to ward off the possibility of a hostile takeover – a common fear among struggling retailers, who become attractive targets for investors when the their share prices fall.

The Seattle-based chain had reason to be paranoid: the move came just days after Mexican department store chain Liverpool acquired a 9.9% stake – valued at around $294 million – in the retailer , becoming its second largest shareholder behind the Nordstrom family. .

Liverpool said the purchase was the result of additional cash and its desire to “diversify assets geographically”.

Yet such a large slice of the business warrants some level of management defense. The poison pill stock plan allows Nordstrom to issue new shares at a 50% discount to other significant shareholders should a third party acquire 10% or more of Nordstrom’s stock without board approval .

This makes it more difficult to initiate a takeover, because when other shareholders buy additional shares at a significant markdown, the pursuer’s stake would be diluted.

“At the end of the day, if a company puts in a poison pill, the headaches and expenses go up for a possible hostile takeover,” said Simeon Siegel, retail analyst at BMO Capital Markets.

Nordstrom said the plan, which expires next September, was not in response to “a specific takeover bid” or other proposed acquisitions. The measure is also 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 unsuccessfully tried to take the company private twice, in 2017 and 2018.

Nordstrom’s Cold War with Liverpool isn’t the only ongoing struggle for control of a major US department store chain.

On Thursday, investment firm Ancora Holdings sent a letter to Kohl’s board urging the company to replace chief executive Michelle Gass and chairman Peter Boneparth. Kohl’s, which faces fierce competition from Amazon and big box stores for the wallets of middle-class consumers, has received a lot of unwanted attention this year.

In February, Kohl’s adopted a poison pill plan to fend off activist investor Acacia Research Corp., an entity backed by hedge fund Starboard Value, which had offered to buy the department store the previous month. According to market reports, Kohl’s also received an offer from private equity firm Sycamore Partners. The department store said at the time, without naming specific suitors, that the offers on the table undervalued its business.

While the poison pills have calmed down acquisition talks at Nordstrom and Kohl’s, that won’t end speculation about either company’s future. Both will have to prove to the market that their turnaround plans can work; otherwise, shareholders may decide that going private, or even selling for parts, is the best option.

It’s not like these companies have fallen asleep at the wheel. Prior to Covid-19, Nordstrom introduced new store formats including Nordstrom Local, a fleet of smaller stores that do not sell any products but are for online pickup and other services. Kohl’s is trying to increase traffic by accepting Amazon returns and opening Sephora stores.

Further reshuffles may be needed, although whether Liverpool, Starboard or Ancora have better ideas is debatable.

Nordstrom has struggled to return sales to pre-pandemic levels. In 2021, its revenue totaled $14.4 billion, down from $15.1 billion in 2019. In its latest quarterly earnings report, Nordstrom cut its full-year 2022 guidance. , citing weakening customer demand and pressure on margins from excess inventory. Stocks are down about 20% this year, roughly matching the S&P 500 index.

Kohl’s also lowered its outlook for the rest of the year in its second-quarter earnings report, pointing to similar factors as Nordstrom. In the first half of 2022, Kohl’s revenue was lower than in 2021 and 2019. Last year, net sales were $18.5 billion, down from $18.9 billion in 2019. Its shares are down 45% in 2022.

Both companies would surely say 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 Darcey Sergison.

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