The Nordstrom Drama Gets an Interesting Valuation Twist

In this segment from MarketFoolery, host Chris Hill is joined by Motley Fool Asset Management's Bill Barker to check in on the latest news from department store giant Nordstrom (NYSE: JWN), which is being eyed for a takeover. The Nordstrom family is known to want the company back in its own hands -- so why would they make an offer that's lower than where the share price is today? Regardless of what comes next, there is a method to the apparent madness -- on both sides -- as Barker explains.

Bill Barker is an employee of Motley Fool Asset Management, a separate, sister company of The Motley Fool, LLC. The views of Bill Barker and Motley Fool Asset Management are not the views of The Motley Fool, LLC and should not be taken as such.

A full transcript follows the video.

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This video was recorded on March 6, 2018.

Chris Hill: One business that is certainly more tied to malls is Nordstrom. The Nordstrom family drama is seeping into the headlines. I don't want to make it sound more dramatic than it is, but the family has made no secret of the fact that they are looking to take their retail business private. The latest iteration of this is, apparently, the Nordstrom family offered $50 a share. Right now, I think the family owns about 31% of Nordstrom. They offered $50 a share. The board rejected that offer, which I completely understand, because right now it's trading above that. When the day started, it was at about $52 a share, or just shy of that. So, where do you think this is going next? It's not unusual for a board of directors to reject the first offer. That just makes pretty good sense. But do you think the Nordstrom family is going to come back and say, "All right. What about $55? What about $60 a share?"

Bill Barker: I think, where the Nordstrom family is mentally operating from, I guess, is, that moment in time when it became public that they were interested in taking the company public. I don't know what the date of that was, but the shares were trading a little bit above $40 at that time. Understandable. The market reacted to that -- "there's interest by the family in taking the company public" -- so the share price moved up. Now it's moved up around 25% from where it was. The bidders, the Nordstrom family, is still thinking, "The market had this at a value of $40-something. We're coming in at $50. It wouldn't be at $50 if we weren't in the market to buy it." That's why the price is $50 or north of $50. And I can imagine a scenario where they stick with their price and wait for the stock to come back down to earth.

Hill: I mentioned that the board of directors rejected this offer. It was a special committee advising the board that was installed to evaluate this offer. They go to the board and they say, "Look, you should reject this offer." If the board comes to you and says, "All right, the special committee said to reject this offer," what do you think? Do you think they should take this?

Barker: No. I think that the fact that the price is still above $50 indicates to me, if I'm at the board -- if I'm on the board and I accept an offer for $50 while the stock is above $52, and things aren't a disaster, then I know I'm going to get sued. Right? Right?

Hill: That's right! For just one moment, I forgot about the existence of lawyers.

Barker: Yeah. There's no chance that I'm not personally going to get sued for accepting that, unless I have some sort of inside information that doesn't seem to exist that there is catastrophe afoot, and that if we can get $50 we should take that while the getting's good. I don't think that's the case. I'm not implying there's anything like that. But the market is continuing to value the company as if, whether it's the Nordstroms or somebody else, there's value here, and the bidding has not finished.

Bill Barker has no position in any of the stocks mentioned. Chris Hill has no position in any of the stocks mentioned. The Motley Fool recommends Nordstrom. The Motley Fool has a disclosure policy.