The Ratings Game: Nordstrom’s ‘poison pill’ and insider ownership limit activist investor’s options, analyst says

Last week’s report that activist investor Ryan Cohen is taking a large stake in Nordstrom Inc. sent the company’s stock rocketing, sparking talk that the retailer could join the list of so-called meme stocks.

Citing people familiar with the matter, the Wall Street Journal reported that Cohen was amassing a sizable stake in the upscale department-store chain and was also seeking changes to the company’s board. Cohen was said to be targeting former Bed Bath & Beyond Inc. 

CEO Mark Tritton, who has served as a Nordstrom

director since April 2020 and is the chair of the board’s compensation committee, the paper reported. Cohen and Tritton have crossed paths before: The latter was ousted from his role at Bed Bath & Beyond just months after it emerged Cohen had a stake in the home-goods retailer.

But in a note released Monday, JPMorgan analyst Matthew Boss wrote that Cohen is unlikely to push for a complete overhaul of Nordstrom’s leadership. “Our recent work points to Cohen’s strategic focus with Nordstrom as limited to cost-cutting efforts and a Board refresh (including the replacement of … Tritton),” Boss wrote. “In contrast to recent activist engagements across our coverage, which have involved a C-suite overhaul with a slate of incoming executives/industry veterans (i.e., Mantle Ridge/[Dollar Tree]) — we do not see a full C-suite leadership shake-up on the table today.”

Now read: Nordstrom stock pulls back after rocketing on reported Ryan Cohen stake

Boss pointed to Nordstrom’s adoption of a “poison-pill” strategy in September and the company’s approximately 30% insider ownership as “representing a hurdle” to effective change. “Members of the Nordstrom family together beneficially own roughly ~30% of the company’s common stock, with Erik Nordstrom (CEO) and his brother Peter Nordstrom (President, Chief Brand Officer) serving as directors on the Board,” he wrote.

In September Nordstrom adopted a shareholder-rights plan, or “poison pill,” that will remain in effect for one year. “The Rights Plan has not been adopted in response to any specific takeover bid or other proposal to acquire control of the Company, and is not intended to deter offers that are fair and otherwise in the best interests of all Nordstrom shareholders,” the company said in a statement at the time.

However, the plan was announced just days after the Mexican department store company El Puerto de Liverpool purchased a 9.9% stake in Nordstrom, Boss noted. The poison-pill move, he wrote, was undertaken “with the intent to protect the interests of the company and shareholders by reducing the likelihood of a hostile takeover of the company.”

Also read: Ryan Cohen and Nordstrom: Another meme stock in the making?

JPMorgan has an underweight rating for Nordstrom.

On Friday, a Nordstrom spokeswoman told The Wall Street Journal that the company was open to hearing from Cohen and other investors. “We will continue to take actions that we believe are in the best interests of the company and our shareholders,” she said.

A spokeswoman for Nordstrom also told Bloomberg that “Mr. Cohen hasn’t sought any discussions with us in several years.”

Related: Nordstrom Stock Surges 30% on Report Activist Investor Ryan Cohen Has a Stake

MarketWatch has reached out to Nordstrom with a request for comment.

Nordstrom’s stock, which ended Friday’s session up 24.8%, closed Monday’s session down 8.4%, outpacing the S&P 500’s

decline of 0.6%.

Of 22 analysts surveyed by FactSet, three have a buy rating, 13 have a hold rating and six have an underweight or sell rating for Nordstrom.

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