Nordstrom: Buyout Financing Looks Solid but Price Is Low; No Change to $38.50 Fair Value Estimate

No-moat Nordstrom received an acquisition offer from the founding family and Mexican retailer El Puerto de Liverpool. Together, they control about 43% of the outstanding shares and have offered to buy the rest for $23 per share. While this is a premium of 35% to the price at which Nordstrom’s shares were trading when rumors of a buyout were reported in March, it is well short of our $38.50 fair value estimate, which we are not currently changing. Indeed, we do not believe that the offer fully compensates Nordstrom’s smaller shareholders for expected improvement in profitability, which has been depressed relative to its historical standards. Specifically, over the next three years, we project its adjusted operating margins will improve to about 6% from less than 4% this year.