On the same day that Google launched an online bookstore, hedge-fund manager and major Borders shareholder Bill Ackman offered to finance a $960 million bid for Borders to acquire its much larger rival, Barnes & Noble, which has been up for sale since the summer. The news sent both companies' stock prices soaring.
But as e-books contend with physical books and foot traffic in brick-and-mortar bookstores gives way to e-commerce, can a merger bring salvation to these two large but embattled bookstore chains?
- It's A Smart Move, argues Jim McTevia, a Michigan-based turnaround consultant, in an interview with Bloomberg. The merger would allow Borders to slash its number of stores and Barnes & Nobles to fend off one less competitor: "You have two troubled companies in a troubled industry in a country where the consumer is troubled. This is in the best interest for the future of both companies.”
- The Merger's Promising, But It's Plagued With Problems, remarks The Wall Street Journal's Shira Ovide. Yes, "the combined company could shut down a bunch of lousy stores, still have the heft to strong-arm book publishers, and concentrate their combined might on growth areas like electronic books." But there are three significant obstacles: 1) Barnes & Noble is losing money and saddled with debt, and Borders is financially troubled as well; 2) Bill Ackman has a financial interest in goosing Borders's stock price; and 3) it's doubtful that Barnes & Noble founder Len Riggio will relinquish his influence over the business or sell his nearly 30% stake in the company at Ackman's proposed price per share, which is less than he paid for his shares by exercising stock options this summer.
- And It Would Be A Drop In The Book Market Bucket, asserts Fortune's Dan Primack. Adding up Ackman's offer, Borders's market capitalization, and other factors like post-close synergies, Primack estimates that a merged Borders-Barnes & Noble would be worth a generous $2 billion. In contrast,
As of market open today, Amazon was valued at more than $79 billion. Or, put another way, around 40x the size of Borders and Barnes & Noble combined ... Under normal circumstances, a company's stock would fall on news of two other rivals merging. But Amazon actually has ticked up more than a point today. Guess that's because Amazon shareholders no longer consider Borders and Barnes & Noble to be serious competition... whether alone or together.
- This Is Not A Serious Overture, declares Sarah Weinman at Daily Finance: "Even if it is, it would be difficult, and not economically feasible, for B&N to accept a bid from a company it has repeatedly said no to in the past. And as for Borders, if a merger was its plan for saving itself, expect B&N's rejection of the deal to accelerate its downward spiral--an end that, sadly for the publishing industry, is likely to come sooner rather than later." Weinman wouldn't be surprised if Borders's move motivates Barnes & Noble founder and chairman Leonard Riggio to make his own bid for Barnes & Noble with the help of private equity.
- It's Unlikely To Happen, concludes Morningstar analyst Peter Wahlstrom: "We believe the report is actually more of a statement that Barnes & Noble has been doing a better job of developing and implementing its long-term strategy--particularly on the digital front--and Borders could be looking to buy what it can't quickly develop on its own."