Quote:
Originally Posted by Xanthe
I'm surprised though, that Borders would eat B]&N, I thought it would go the other way, just comparing the walk-in traffic in my area, and the better pricing B&N has online. (Not to mention the fact that the B&N website actually works well while the Borders website always seems to have one glitch or another.
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The trick in who eats who is the money. Acquisitions cost enormous amounts, and must be financed. The financing normally comes from outside lenders.
There were rumors months back that B&N might try for Borders, but the question was where B&N would get the money. Neither company is in good shape, and lenders would not be enthusiastic. When they make loans they like to be repaid, and they would see a significant risk the combined company might go belly up and default.
In this case. Borders has a major hedge fund as an investor who could help come up with the money. If it happens, the hedge fund will want to combine the companies, drop redundant operations and employees, fold under performing stores, and try to make a smaller, leaner company, better suited to survive. Their incentive will be to boost the stock price of the combined entity, then sell their holdings at a substantial profit. Folks like hedge funds are in it for short term gains, and are unlikely to be long-term owners.
The first question, assuming this goes off, is whether they
can boost the stock price and sell at a profit. The second is whether, once they've done so, the newly merged company can be competitive. I wouldn't place any large bets on either of those outcomes, though the hedge fund is obviously willing to make a billion dollar bet on the first.
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Dennis