Borders could acquire Barnes & Noble under shareholder's proposal
Borders could acquire Barnes & Noble under a proposal by one of its largest shareholders.
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(This story has been updated several times with additional information.)
One of Borders Group Inc.'s largest shareholders has proposed a bid to acquire brick-and-mortar book store chain competitor Barnes & Noble, according to a filing with the Securities and Exchange Commission.
Bill Ackman, who now owns about 37 percent of Ann Arbor-based Borders through his New York hedge fund Pershing Square Capital Management, said he would help Borders (NYSE: BGP) fund an acquisition of Barnes & Noble (NYSE: BKS) at $16 a share — a premium of about $2.50 from where it closed Friday. Alternatively, he said he would also help structure a bid that would include stock and cash.
Investors cheered the deal. Shares of Barnes & Noble stock rose 10.6 percent to close at $14.69, though that was down from $15.47 minutes after the market opened. Borders' stock got a 28.7 percent boost, rising from $1.08 to close at $1.39.
It's unclear how the acquisition could play out, whether the two brands would be operated independently or whether the brands would be merged.
Borders' executive leadership is responding positively to the proposal.
“We can confirm that Mr. Ackman has shared with Borders his perspective that a business combination of Borders and Barnes & Noble could create significant synergies," Borders said in a statement. "We can also confirm that Mr. Ackman has expressed his willingness to provide financing for such a transaction, and we welcome his participation. We have previously expressed to Barnes & Noble our interest in such a business combination, and we look forward to continuing those discussions.”
Ackman has previously said he believed that in the long term, Barnes & Noble and Borders could be merged to ensure their survival.
Jim McTevia, managing member of Bingham Farms-based restructuring consultancy McTevia & Associates, said the acquisition would likely result in the
survival of just one brand -- and that it would almost certainly be Barnes & Noble.
McTevia, recent author of “Culture of Debt: How a Once-Proud Society Mortgaged Its Future," said a merger between both companies makes sense from a strategic and financial perspective.
"It's a necessary first step in the survival of Barnes & Noble, and I've always said that Borders is ultimately going to go by the wayside," he said. "It's just not in the cards that the two giants are going to stand toe by toe and hit each other over the head. Sooner or later one of them is going to crumble."
Not everyone thinks the merger makes sense. Michael Norris, a publishing analyst with Maryland-based Simba Information, told Michigan Radio that the idea is "complete bonkers."
How an acquisition could affect Borders' corporate headquarters in Ann Arbor, where the firm employs about 600 workers, also remains to be seen.
But Borders is widely viewed as the company with the weaker balance sheet and revenue stream. The firm has struggled to stem a streak of losses and narrowly averted bankruptcy during the financial crisis of late 2008 and early 2009.
McTevia said a merger would lead to big cuts in personnel and store locations for both companies.
"There's going to be some very serious cost-cutting as far as personnel is concerned," he said.
It would also give them more muscle to compete in the emerging electronic books market. Barnes & Noble sells an e-reader it developed, a device called the Nook, while Borders sells several devices with an emphasis on the Kobo e-reader.
Combining both companies would give both companies a chance at sustained profitability, McTevia suggested.
"The whole landscape of bookselling is changing, and it's changing dramatically," he said. "There will always be those people who want to physically go into a book store and browse. I'm the biggest browser myself."
In February, as speculation swirled about Borders' future, Ackman assured investors that he saw bankruptcy as an unlikely scenario for the firm.
"It may become part of an industry consolidation at some point, or it may survive as a standalone company," Ackman told CNBC at the time.Borders, which has conducted two sets of layoffs this year at its Ann Arbor headquarters, employs about 19,500 workers at 500 superstores and another 100 smaller stores globally. Barnes & Noble has about 40,000 employees at more than 1,300 stores.
Borders' sales have been on a continuous slide with no sign of a turnaround. In its second fiscal quarter, which ended July 31, Borders reported that its sales slipped 11.5 percent to $526.1 million. Sales at stores open at least a year declined 6.8 percent over the same period, and the company reported a loss of $46.7 million.
Borders is expected to report its third quarter earnings on Thursday.
Contact AnnArbor.com's Nathan Bomey at (734) 623-2587 or nathanbomey@annarbor.com. You can also follow him on Twitter or subscribe to AnnArbor.com's newsletters.
Comments
CynicA2
Mon, Dec 6, 2010 : 10:27 p.m.
I think Rob Pollard has the right idea, especially considering that Ackman and Bennett Lebow between them own most of Borders stock, and such a deal would keep them in the game, as they would probably end up controlling B&K. Borders vanishes almost overnight, there is less competition, fewer costs, and a whole new company for them to rummage around in. Beats a trip to bankruptcy court, but still strikes me as the welding of one boat anchor to another... you just have a bigger boat anchor. Ackman made so much money shorting banks and other financial stocks a couple years ago, that this whole Borders thing is just a small fly in his ointment.
imsteved
Mon, Dec 6, 2010 : 5:10 p.m.
HA HA! Who's going to be the last bookstore standing, now? ( Btw - @John, keep us posted on how those B&N negotiations are going, you seem to have some inside action!)
Elaine F. Owsley
Mon, Dec 6, 2010 : 4:53 p.m.
This sounds like a "murder/suicide" plot. Then no one is left but the e-books.
Killroy
Mon, Dec 6, 2010 : 3:15 p.m.
Jack, no, that would be New York. Sears moved Kmart to New York. I think its a bit like comparing apples and airplanes though. Kmart had a assets and plenty core infrastructure. BGI has been steadily shrinking and has no assets? I don't see why buying B&N would be a good move considering that both our dinosaurs... I would say that this venture is more akin to the recent airline mergers.
John
Mon, Dec 6, 2010 : 2:38 p.m.
What a joke, he did it just to raise the Borders stock price before the earnings announcement that will be so bad that it would delist the stock. Never in a million years Barnes & Noble will agree to be taken over by this zombie company which has been on a brink of bankruptcy for years. B&N already has 8-10 offers from private investment companies all over the place. Again, what a joke.
Speechless
Mon, Dec 6, 2010 : 1:20 p.m.
Based on the report, I'll second this earlier commentary: "... Well, it's not really 'Borders' proposing to buy B&N. As noted, Borders is much smaller and doesn't have the cash or stock value to do the purchase itself. Rather, it's an investor in Borders saying he can drum up the cash (e.g., from his hedge fund, which raises money for all sorts of investments) to buy the much larger B&N.... So it's not really Borders buying anything. Borders is just being using as the vehicle for a hedge fund to merge the two companies, and then slash expenses...." The corporate economy is weird, and it revels in gamesmanship like this. Wealthy stock investors and CEOs throw their weight around, cut deals for themselves, and thousands of employees wind up on the floor as collateral damage. "Excess" staff may soon pound the pavement with unemployment bennies in hand, but it will all be done to promote an eminently worthy cause — the stock price for the combined megastore chain will go up! Well, it might go up for a little while. Then ebooks and Amazon will do their thing, and send the book-based megastore concept off to the realm of dinosaurs.
Somewhat Concerned
Mon, Dec 6, 2010 : 12:37 p.m.
The K-mart - Sears deal was similar in that it really was a deal put together by an investor: Eddie Lampert. Here, it's Bill Ackman. It makes sense for the shareholders in both companies. A small number of Borders people will move to B & N's NY-NJ headquarters operations because there is no reason to keep it in Ann Arbor and try to move all the B & N people (who will run the company) to Michigan. Most Borders people will be let go. Not a problem since most people in Ann Arbor hate New York and wouldn't move there. It's not an evil plot, it's just life. Another weak and mis-managed company in a tough industry bites the dust.
ShadowManager
Mon, Dec 6, 2010 : 12:03 p.m.
I'm sure somebody somewhere has a proposal out to buy the Brooklyn Bridge, too.
Audion Man
Mon, Dec 6, 2010 : 11:35 a.m.
This smells like a gambit to temporarily manipulate the stock price and make someone some cash. I suppose it would be good for Ann Arbor, especially if the headquarters stayed here, but I doubt four separate stores would survive in Ann Arbor, so there would be probably considerable consolidation there.
James
Mon, Dec 6, 2010 : 11:31 a.m.
Jack--interesting point about Sears and Kmart. They were not the likeliest of bedfellows yet they came together to survive. One correction that supports a Borders acquisition even more: it was KMART that acquired Sears--not the other way around! Then Kmart moved to Sears HQ in suburban Chicago.
Rob Pollard
Mon, Dec 6, 2010 : 11:06 a.m.
Well, it's not really "Borders" proposing to buy B&N. As noted, Borders is much smaller and doesn't have the cash or stock value to do the purchase itself. Rather, it's an investor in Borders saying he can drum up the cash (e.g., from his hedge fund, which raises money for all sorts of investments) to buy the much larger B&N. Then, he would make sure this investment pays off buy "right-sizing" his new asset, i.e., closing now duplicate headquarters, such as in Ann Arbor, along with closing any "duplicate" stores. So it's not really Borders buying anything. Borders is just being using as the vehicle for a hedge fund to merge the two companies, and then slash expenses. As noted in the story, B&N would be the brand that would last coming out of this, and I'm sure the HQ would be in NYC, not in Ann Arbor.
Jack
Mon, Dec 6, 2010 : 10:58 a.m.
I don't care as long as the HQ remains in Ann Arbor. Sears bought Kmart and moved it's HQ to Chicago. I would hate to see another local business leave us..
Mumbambu, Esq.
Mon, Dec 6, 2010 : 10:22 a.m.
I don't understand how the numbers work on this. BKS has a market cap more than 10 times that of BGP. BGP hardly has any money.