Nordstrom Inc. this week adopted a shareholder rights plan that the Seattle-based retailer said will protect the interests of the company and all of its shareholders by reducing the likelihood of a company gaining control. The news of the “poison pill,” which took effect immediately on Monday and is set to last until September 19, 2023, follows immediately from Mexican department store chain El Puerto de Liverpool SA de CV (“Liverpool”), which announced its accumulation has a 9.9 percent stake in Nordstrom, making it the second-largest shareholder in the NYSE-listed company, behind only former chairman Bruce Nordstrom.
Nordstrom’s adoption of a “poison pill” alone isn’t exactly earth-shattering news, as implementing such a plan is a common move for companies facing a potential takeover. “Companies have a variety of tools in their toolbox to deter unwanted advances,” said Allan Rooney of Rooney Law. “One of the most effective anti-takeover measures is the Shareholder Rights Plan, also known as the poison pill, [which] is designed to prevent an investor from acquiring a controlling interest in a company and taking control.” In the case of Nordstrom, if an individual or company acquires 10 percent or more of its outstanding shares, the poison pill becomes the existing shareholders to acquire shares in the company at a substantial discount in order to deter an attempted takeover by Liverpool either make the company less attractive or dilute the prospective acquirer’s existing ownership interest in the company.
Not the first pill of fashion
Gucci certainly wasn’t the first shareholder rights plan to hit the headlines used in fashion, but famously enacted a poison pill plan in February 1999 to stave off an unwanted takeover by LVMH. Led by then-CEO Domenico De Sole, the Italian fashion brand issued more than 20 million new shares to employees, diluting the 34.4 percent stake that LVMH had quietly acquired to 26 percent. Nearly a decade later, Hermès revealed — having ended up on the other end of an attempted LVMH takeover that the Birkin bag maker described as “hostile” — that its charter allows it to use poison pills to fend off unwanted offers.
Since then, poison pills — first used in the 1980s — have gained significant momentum. “This is not at all unusual for American companies or companies with [domestic arms] registered in Delaware or any other US state to use poison pills in a situation where someone is accumulating a large block of stock and the company’s board of directors fears it [such an accumulation] will lead to a hostile takeover,” Brian JM Quinn, a professor at Boston College Law School who focuses on corporate law, M&A and transaction structuring, told TFL.
A poison pill in particular took center stage this year when Twitter’s board of directors approved a strategy in April to protect “shareholders from coercive or otherwise unfair takeover tactics” by Tesla CEO Elon Musk. The move was effective, Quinn says, as it got Musk to “come to the table and pay a premium for the company.” (To fund the $44 billion deal, Musk is paying $54.20 per share, a 38 percent premium to Twitter’s closing price on April 1, 2022.)
A dive into Nordstrom’s plan
Nordstrom’s recently unveiled plan may not fall outside the norm of what other company boards would do in such a situation, but there are still some interesting elements, most of which challenge Nordstrom’s claims of its implementation of the shareholders’ rights plan is not a reaction to a specific takeover bid. A careful reading between the lines suggests there’s more going on here (of course) than Nordstrom cares to admit.
First and foremost, it should be noted that unsolicited introduction of a poison pill is unlikely, as it may not stand up to Nordstrom if challenged by shareholders, as the courts have been unwilling to let such plans stand without the company in question being able to make one to recognize the threat of a takeover, which led to the acceptance of the plan. A concrete example on this front came relatively recently from Delaware, where the Supreme Court upheld a November 2021 Chancery Court decision that shot down the poison pill from oil pipeline company The Williams Cos Inc. Among other things, the court found that the pill launched by the company in March 2020 (after a stunning stock market crash) was abusive because it did not target a specific threat. (The court also questioned certain “extreme” provisions that “appear to have been designed to limit shareholder activism more generally,” Sullivan & Cromwell explained in a note.)
While Williams cited his desire to prevent shareholder activism at a time of market uncertainty as one of the disputed threats, particularly given the stock price decline, the court found that the company’s board was not aware of any specific activist efforts or potential acquisitions while playing, and hit the pill.
Additionally, the limited-time nature of the poison pill — which expires on September 19, 2023 — further suggests that Nordstrom did indeed implement the plan in direct response to the Liverpool takeover. “If nothing happens within the year [that the pill is in place], the pill is going away,” says Quinn, claiming that the pill is just “a defense against a potential buyer” – here Liverpool – and therefore “is not destined to be around forever”. (For example, if Liverpool goes away in nine months, the pill will go away on its own after nine months. Or, alternatively, if Liverpool is still around after the pill expires, the Nordstrom Board of Directors may accept a new pill.)
The limited-time nature of the Nordstrom poison pill is notable as it appears to align with a larger trend in corporate governance. Institutional investors and advisory firms don’t like it when companies “just have poison pills in action,” according to Quinn, because “Without other information, pills generally signal a company isn’t for sale and even if someone came up with a high bid, the board might.” say no.” As such, this has led to a surge in limited “good governance” pills expiring.
With that in mind, Nordstrom’s deadline on the pill almost certainly serves as “a message from the board to the company’s largest institutional investors” that, according to Quinn, this is merely a response to a specific threat — and not a more general attempt by Nordstrom at the Binding the ownership/company front to the status quo.
Finally, the nature of Liverpool’s filing with the US Securities and Exchange Commission and Nordstrom’s response are worth noting, with Liverpool submitting a Schedule 13G form (as opposed to a Schedule 13D) just days before Nordstrom introduced its poison pill. submitted. The 13G is used to report a party’s shareholdings in excess of 5 per cent of a company’s total share issuance and is interesting here as it means that Liverpool characterizes itself as a ‘passive investor’ who has no present intention of doing so Control company – as opposed to a party intent on controlling or influencing the management of the company (e.g. seeking a seat on the board), the latter of which would require a 13D filing.
Liverpool may describe itself as a passive investor in its filing (which could certainly change and result in an amended filing) and say its acquisition of a sizable block of Nordstrom stock will encourage efforts to “diversify its geographic footprint.” However, by launching a poison pill, Nordstrom is apparently signaling Liverpool don’t believe it – and possibly for good reason. The types of parties that have typically filed 13Gs are large institutional investors who have no interest in taking control of the underlying companies despite the volumes of stock they have acquired. Liverpool stands out in this sense as it is not a ‘non-average passive investor’; Just as Musk, who initially filed a 13G in connection with his stake in Twitter, is not a passive investor.
Given Liverpool’s status as an operating company in the department store industry, Nordstrom is probably right to question its current claim of a “passive investor” and put in place a plan to ensure it cannot complete an acquisition without Nordstrom’s board of directors in the Is able to negotiate an attractive deal for its shareholders.
