CNBC's Jim Cramer: Borders can't survive 'the way it is now'
It’s not hard to diagnose the infirmities that ail Ann Arbor-based Borders Group Inc.
File photo | AnnArbor.com
“Amazon did to them what iTunes did to music,” Cramer said. “It just took the profitability out. And you’ve got leases that are probably too expensive and you’ve got a balance sheet that’s not too good.”
Cramer is a lot more optimistic about Michigan and the auto industry, which he believes is headed for a dramatic recovery.
On a special “Invest in America” version of his show today, Cramer enthusiastically recommended Ford’s stock (NYSE: F) and said he believes Ford shares could double from where they closed today at $18.71.
“I think American manufacturing and the auto industry are in a really serious resurgence,” Cramer said.
Cramer spoke with AnnArbor.com’s Nathan Bomey about the future of Ford, Borders and the state of Michigan. Excerpts:
AnnArbor.com: You’re optimistic about Ford. But a lot of people are still concerned about the level of debt they have compared to GM and Chrysler.
Cramer: Yeah, I mean, the paydown is pretty radical. If I were concerned about something, it would be that the labor agreement isn’t reached promptly or that there’s issues with the labor agreement.
The reason I say that is because I think the ratings agencies are just simply waiting to get that labor agreement done. And if it’s favorable and it doesn’t ruin profitability or hurt profitability, then I think what you’ll see is that the rating will go up and they can reissue debt and do it at a very cheap price if they want to.
So, while I do always worry about debt - because anybody would be, especially after what we’ve gone through and it would be too glib to say it’s not an issue -- the company does generate a huge amount of cash. Huge.
Nathan Bomey | AnnArbor.com
That’s my reaction is that a good employment contract, lots of free cash flow, ratings agency upgrade and they’ll be fine.
AnnArbor.com: Borders Group, the bookseller, is based in Ann Arbor.
Cramer: That is such a tragedy.
AnnArbor.com: A lot of people are concerned about it right now.
Cramer: I think they should be.
AnnArbor.com: Do they think they can survive on their own?
Cramer: Not in the way it is now, no. Not in this form. And it’s really unfortunate. I was out at Borders headquarters -- it was maybe April 2006 I went there. It was still, you know, kind of an interesting stock.
And then Amazon did to them what iTunes did to music. It just took the profitability out. And you’ve got leases that are probably too expensive and you’ve got a balance sheet that’s not too good.
There are very few companies where it matters that it’s a shame. As someone who writes books and someone who knew the people who worked at Borders, Borders is an important institution, but the world has changed.
AnnArbor.com: Bill Ackman of Pershing Square Capital Management pitched a bid for Barnes & Noble. He said he’d finance it at $16 a share. Analysts seemed not to like the idea. Do you like the idea of a Barnes & Noble, Borders merger?
Cramer: I happen to be a huge fan of the management of Barnes & Noble. I very rarely do this, but if the Riggios think it’s right, then it’s right. They are fabulous and great business people. They had to do the Nook, which was expensive.
Nathan Bomey | AnnArbor.com
I rarely do this, but if management thinks it’s right, then it’s right, because those guys deserve that.
AnnArbor.com: When Circuit City died, some people assumed all the business would go to Best Buy, but that didn’t necessarily happen. Some of it did. So if Borders dies, does all the business just go to Barnes & Noble?
Cramer: Some of it will obviously. You’ll have a quarter or two bump.
I’m also reluctant to say that that’ll happen given the fact that Best Buy hurt a lot of people. That’s been a bad, bad stock. The industry’s bad. Best Buy did well for a little bit because of the destruction of Circuit City, and then poof.
AnnArbor.com: Is the e-book a threat to Barnes & Noble in a few years? They’ve got the Nook.
Cramer: They’ve got the Nook, but I’ve got to tell you: I’m a big supporter of Amazon stock. Apple took on Microsoft. Amazon is taking these guys on. And the Kindle is fabulous. They’ve just got great infrastructure. America is really comfortable shopping at Amazon.
AnnArbor.com: Publishers are very concerned about Borders with Borders delaying payments.
Cramer: They have to be.
AnnArbor.com: The publishers would want Borders to survive, though, right?
Cramer: Oh my God, yes. As someone who has fortunately sold a lot of books, you can see that Borders really matters.
Mr. (Greg) Josefowicz was running it when I was out there. And he’s a book guy. I actually bumped into him at that fantastic book store. Something ‘drum.’
AnnArbor.com: Shaman Drum. It's gone now.
Cramer: Shaman Drum. I literally bumped into him. I said, ‘What’s your name?’ He said, ‘Josefowicz.’ I said, ‘Hey, you’re the CEO.’
It’s a company that’s been so supportive of writers. It’s really painful.
AnnArbor.com: To shift gears, if the state of Michigan was a stock, would you invest right now?
Cramer: Yeah, absolutely - and not Pollyannaish. I think American manufacturing and the auto industry are in a really serious resurgence.
If you can go from having 11 million units - 10, 11 million - to 16, which they’re predicting for 2013, then you want to play Michigan.
And the way I would actually do it is by playing DTE, Detroit Edison. That’s the best analog to Michigan.
AnnArbor.com: Obviously you took the route from the airport to this plant. This plant is thriving, but a lot of plants are empty.
Cramer: Yeah, I know. You need something as big as what I think the auto sector will turn.
I was on a TV station this morning, it was the NBC affiliate, and I told them, I said, ‘Listen, you know, I’d like to look at the Victorian homes in Detroit. I know that they’re run down. I’d like to look at -- maybe there’s farmland.’
He was very bearish. A lot of my investing - and I’m not allowed to own stocks - is based on the idea that I might lose everything.
But that I was not dissuaded at all from what I heard from him. I was out in California (years ago) to kick the tires twice to buy land and homes. And I didn’t pull the trigger cause everyone said, ‘Jim, it’s going to zero.’ It was a very bad mistake. I would love to take a shot (with Michigan).