Nordstrom Inc. isn’t taking any chances.
Known in financial circles as a shareholder rights plan, the maneuver allows existing shareholders to increase their holdings at a discounted rate, which means investors with hostile intentions can’t amass quite the power and influence they’d want to have in order to force their plans on the target company.
Nordstrom, however, dismissed the idea that it put the rights plan in the place “in response to any specific takeover bid or other proposal to acquire the control of the company,” adding that the move “is not intended to deter offers that are fair and otherwise in the best interest” of its shareholders.
The news came nearly a week after El Puerto de Liverpool, S.A.B. de C.V., the parent company of Mexican retail chain Liverpool, acquired a 9.9 percent stake in Nordstrom, according to a federal filing. Nordstrom can exercise the poison pill only when an investor amasses, without board approval, 10 percent or more of its outstanding common stock. Indications are that Liverpool, which acquired 15.755 million shares, is a “friendly” investor.
Liverpool said in a statement Thursday that it paid 5.9 billion pesos ($293.8 million) for the stake, using cash surpluses to fund its investment. The Mexican retailer made the purchase as a “passive investor,” noting that Nordstrom offers an attractive way for the company to diversify.
What’s notable about Nordstrom’s poison pill is that it gives shareholders of record at the close of business on Sept. 30, 2022 one common stock right, in the form of a dividend, for each outstanding share of Nordstrom common stock. Given that Liverpool acquired its stake on Sept. 8, according to its Securities and Exchange Commission filing, that means it’s also entitled to the dividend. The poison pill is set to expire on Sept. 19, 2023.
Liverpool’s stake positions the Mexican company as Nordstrom’s second-biggest shareholder behind the Seattle retailer’s former chairman Bruce Nordstrom. Other family members, including CEO Erik Nordstrom and president and chief brand officer Pete Nordstrom, also hold significant equity stakes.
Shares of Nordstrom closed at $18.37 in Big Board trading last Thursday, when Liverpool’s stake first became public knowledge. On Tuesday, Nordstrom shares climbed to around $19.66 following news of the poison pill. But its shares are still trading near its 52-week low of $16.83 on Sept. 1, 2022. The 52-week high was $36.43 on Nov. 18, 2021. The board in 2018 rejected a $50-a-share buyout offer.
Retailers often become attractive takeover targets when share prices slump.
Kohl’s Corp. in February adopted a year-long poison pill after rejecting a number of buyout offers. The retailer has been embroiled in activist battles pushing the company to put itself up for sale. Kohl’s rejected at $6.84 billion offer after a months-long saga and is now working on its turnaround strategy.
The last time poison pills were in vogue was back in 2020, when the pandemic upended retail and sent share prices plummeting, making struggling retailers sitting ducks for opportunistic acquirers. Chico’s, Express, Tailored Brands and the now-defunct Ascena Retail Group were among those who adopted rights plans at the time.
Meanwhile, the company is steadily expanding its off-price presence with three Rack stores opening in California next year, it also announced Tuesday. The planned locations in Anaheim Hills, Clovis and San Clemente will bring Rack’s Golden State footprint to 57. Carl Jenkins, senior vice president of Nordstrom Rack Stores, said the expansion “strengthen[s] out network of stores” and “introduce[s] new customers to Nordstrom Rack’s unique offering.” In July it announced plans to open one store apiece in Tennessee and Kansas, also in 2023.