Borders Poised to Buy B&N

[rhadin]

When the dust settles, I think what we will see is Google buying both Borders and B&N, then offering a deal to Sony. The Sony deal I envision is to merge the Sony bookstore into the Google-Borders-B&N store (which will be Google Books) and in exchange, Google will drop the B&N and Borders hardware and subsidize the Sony hardware to make it more competitive against Amazon. Bottom line -- in my opinion -- is that if pricing were equal and all Sonys had wireless, the Sony hardware is far superior to the Kindle, and I think Google has the resources to make that battle.

At that point, I think Google could approach Kobo to join forces as a challenge to Amazon. Kobo could redo Google Books and provide much of the missing expertise.

I wrote about this on my blog.

[Pomtroll]

You know rhadin..I can see that happening. It will be interesting to see how that dust does settle.

[DMcCunney]

Originally Posted by Rebo

Borders is on the verge of bankruptcy and its stock is at a dismal $1.47 while B&N is at $15.3. A company like Borders can’t become this dismal if the management is semi-descent. It seems unbelievable for people in Main Street to understand how can the weak and the broke can come up with funding to buy out the stronger rival. It is to the best interest of B&N to just wait for Borders to go bankrupt and then pick up some of the company’s assets at a discounted price.

Actually, Borders might be that dismal with good management. The fundamental problem is declining traffic, which is biting B&N, too,

But while B&N waiting for Borders to go belly up and buy the useful bits cheap is a reasonable notion, B&N may not have that option. Borders has a hedge fund as a minority investor, which is committing to help raise the money to let Borders make a takeover bid. If the price offered is high enough, B&N's board may choose to accept it. The board represents the shareholders, and most shareholders are primarily concerned with the price of the stock, and hence the value of their holdings.

Whether the combined company will be viable is another question.
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Dennis

[DMcCunney]

Originally Posted by rhadin

When the dust settles, I think what we will see is Google buying both Borders and B&N, then offering a deal to Sony. The Sony deal I envision is to merge the Sony bookstore into the Google-Borders-B&N store (which will be Google Books) and in exchange, Google will drop the B&N and Borders hardware and subsidize the Sony hardware to make it more competitive against Amazon.

If the Promised Land had arrived, and literature was entirely ebooks, this might make sense. It hasn't. Printed books are still the majority of the market. B&N and Borders are primarily brick and mortar retailers selling physical goods.

What does Google know about that business? How well do you think they might do trying to run it, let alone attempt to fix the problems besetting both B&N and Borders? What might Google get for what would need to be a multi-billion dollar investment? (The answer to the last is endless headaches.)

If I were looking for a realistic buyer for either or both, I'd pick someone already in that business, like, say, Walmart or Target.
________
Dennis

[luqmaninbmore]

Originally Posted by DMcCunney

Actually, Borders might be that dismal with good management. The fundamental problem is declining traffic, which is biting B&N, too,

But while B&N waiting for Borders to go belly up and buy the useful bits cheap is a reasonable notion, B&N may not have that option. Borders has a hedge fund as a minority investor, which is committing to help raise the money to let Borders make a takeover bid. If the price offered is high enough, B&N's board may choose to accept it. The board represents the shareholders, and most shareholders are primarily concerned with the price of the stock, and hence the value of their holdings.

Whether the combined company will be viable is another question.
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Dennis

And thus we see major flaw inherent in joint-stock capitalism: it's inherent myopia making it incapable of looking beyond short term fluctuations of share prices. Quite sociopathic, frankly.

[tubemonkey]

Originally Posted by DMcCunney

If I were looking for a realistic buyer for either or both, I'd pick someone already in that business, like, say, Walmart or Target.

For sure. Google can't even sell a phone, let alone run a B&M store.

[DMcCunney]

Originally Posted by luqmaninbmore

And thus we see major flaw inherent in joint-stock capitalism: it's inherent myopia making it incapable of looking beyond short term fluctuations of share prices. Quite sociopathic, frankly.

Yes and no.

Focus on the next quarter's earnings at the expense of the long term health of the enterprise is a known problem. But in this case, it's not short term fluctuations we're concerned with. B&N and Borders have been in decline for a while, and before the announcement of hedge fund backing to buy B&N, I've little doubt there were pools among financial folks taking bets about just when Borders would go under,

But we are all indirectly complicit to some degree. Consider who the biggest class of investors are. Pension and retirement funds. If you contribute to a pension fund or a 401k plan, the fund's managers invest your contributions into things that will make money, to help insure the funds will be there when you collect your pension or draw against your 401k. If I am one of those fund managers, I am certainly going to be concerned with the value of stocks in my portfolio, and might very well vote yes to a takeover offer that would increase the value of a failing holding, and might sell the stock and invest the proceeds elsewhere if the value did increase. The health and continued existence of the underlying companies is not my problem. The health and value of the fund I manage is.
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Dennis

[Rebo]

Originally Posted by DMcCunney

Yes and no.

Focus on the next quarter's earnings at the expense of the long term health of the enterprise is a known problem. But in this case, it's not short term fluctuations we're concerned with. B&N and Borders have been in decline for a while, and before the announcement of hedge fund backing to buy B&N, I've little doubt there were pools among financial folks taking bets about just when Borders would go under,

But we are all indirectly complicit to some degree. Consider who the biggest class of investors are. Pension and retirement funds. If you contribute to a pension fund or a 401k plan, the fund's managers invest your contributions into things that will make money, to help insure the funds will be there when you collect your pension or draw against your 401k. If I am one of those fund managers, I am certainly going to be concerned with the value of stocks in my portfolio, and might very well vote yes to a takeover offer that would increase the value of a failing holding, and might sell the stock and invest the proceeds elsewhere if the value did increase. The health and continued existence of the underlying companies is not my problem. The health and value of the fund I manage is.
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Dennis

I do recognize the fact that while Borders is in a worse dismal shape, with the help of a hedge fund, they can come up with the funding to take over a stronger rival. The problem of a public trading company is share holders like the hedge fund managers have no interest in the future of any company, any country or any people. Wall Street is littered with greed and short term profit takers. Classic healthy investment model is to cultivate a long term development plan for a company so share holders can benefit from the dividend, not solely on inflating and shorting based on stock prices. In the name of free trade, these hedge funds bought healthy companies, break them up or merge them, laid off the employees, outsource the work and destroy it bit by bit. In my opinion, Wall Street needs to be regulated to ban all short term trading.

[rhadin]

Originally Posted by DMcCunney

If the Promised Land had arrived, and literature was entirely ebooks, this might make sense. It hasn't. Printed books are still the majority of the market. B&N and Borders are primarily brick and mortar retailers selling physical goods.

What does Google know about that business? How well do you think they might do trying to run it, let alone attempt to fix the problems besetting both B&N and Borders? What might Google get for what would need to be a multi-billion dollar investment? (The answer to the last is endless headaches.)

If I were looking for a realistic buyer for either or both, I'd pick someone already in that business, like, say, Walmart or Target.
________
Dennis

I don't think either Target or Wal-Mart would venture into the business, but Google has with Google Books. I agree that Google hasn't the know-how to do this on its own, which is why I think a matchup with Kobo/Chapters/Indigo would be the way Google would go.

Of course, Amazon has thrived without B&M stores and I can also see Google buying Borders and B&N primarily for their customer lists and to close the B&M stores altogether. Actually, that would make a great deal of sense and allow Google to take on Apple and Amazon directly.

[Fbone]

Originally Posted by DMcCunney;1258073

If I were looking for a realistic buyer for either or both, I'd pick someone already in that business, like, say, Walmart or Target.
________
[b

Dennis[/b]

I would choose one of the big publishing houses' media parent or maybe several of them as joint owners.

It would be despised by many.

[Connallmac]

Originally Posted by rhadin

I don't think either Target or Wal-Mart would venture into the business, but Google has with Google Books. I agree that Google hasn't the know-how to do this on its own, which is why I think a matchup with Kobo/Chapters/Indigo would be the way Google would go.

Of course, Amazon has thrived without B&M stores and I can also see Google buying Borders and B&N primarily for their customer lists and to close the B&M stores altogether. Actually, that would make a great deal of sense and allow Google to take on Apple and Amazon directly.

To me that is the real question, why would a company that is exclusively online delve into the decaying world of bricks and mortar? Remember what a tremendous flop the Gateway stores were?

[SensualPoet]

Originally Posted by rhadin

When the dust settles, I think what we will see is Google buying both Borders and B&N, then offering a deal to Sony. The Sony deal I envision is to merge the Sony bookstore into the Google-Borders-B&N store (which will be Google Books) and in exchange, Google will drop the B&N and Borders hardware and subsidize the Sony hardware to make it more competitive against Amazon. Bottom line -- in my opinion -- is that if pricing were equal and all Sonys had wireless, the Sony hardware is far superior to the Kindle, and I think Google has the resources to make that battle.

This is absolutely the least likely scenario I can imagine, even after two martinis. Google has so far purchased approximately zero bricks and mortar operations ... they develop software and stuff that runs it ... Google has no interest in retail.

Originally Posted by rhadin

I can also see Google buying Borders and B&N primarily for their customer lists and to close the B&M stores altogether. Actually, that would make a great deal of sense and allow Google to take on Apple and Amazon directly.

Umm, no.

The cost of buying B&N + Borders -- call it $1.1 billion cash -- and then wiping out the retail operations just to grab the mailing lists .... with something on the order of 2,000 retail locations to abandon leases, fire tens of thousands of workers, and have a fire sale on remaining inventory ... that's giggly "whatcha smokin', dude?" fiscal policy. Neithe Bush nor Obama were that whacky ... and Google is a very well managed company.

[SensualPoet]

I still say watch for the Thursday quarterly figures from Borders ... up? down? sideways? The hedge fund interested in bankrolling this merger, which holds 41% of Borders stock with warrants counted, and is willing to pay $16 cash for the outstanding B&N shares (aka $1 billion) ... almost certainly knows which way the wind is blowing. But there are other market forces at work, including "8 to 10" other interested parties with bids in to buy B&N ... according to B&N.

So, yah, ok ... wait and see. But 36 hours later, has anyone noticed that the B&N shares, though higher than before the offer was made public, haven't actually hit $16 yet? With a Charlie Brown smile, a couple of analysts optimistically stated (including repeated by WSJ "reporters") that the company would sell for at least $20/share. However, B&N closed at $15.65 today ... I'm just saying ....

[DMcCunney]

Originally Posted by rhadin

I don't think either Target or Wal-Mart would venture into the business, but Google has with Google Books. I agree that Google hasn't the know-how to do this on its own, which is why I think a matchup with Kobo/Chapters/Indigo would be the way Google would go.

We're actually talking about different things.

You're thinking of this as the book business. I'm not. I see struggling brick and mortar retailers, who just happen to be selling books.

Like I said, Google knows nothing about that business. The question is whether it should try to learn. The business world is full of corpses of companies who diversified outside of their core strengths, and found out the hard way that the ability to manage and grow one kind of business doesn't magically make you capable of managing another.

It's why I think a hypothetical buyer for either or both companies would have a better chance if it, too, was a retailer, and understood the trade.

Of course, Amazon has thrived without B&M stores and I can also see Google buying Borders and B&N primarily for their customer lists and to close the B&M stores altogether. Actually, that would make a great deal of sense and allow Google to take on Apple and Amazon directly.

I can't see it. It would get Google the respective customer lists, but how much are they really worth? If I were Google, and that was what I wanted, I might just bide my time and wait till the merged entity failed, then buy the lists as an asset at a bankruptcy auction.

Closing stores has a high cost. You don't just say "That store is now closed." Aside from termination expenses for the folks who worked there, you have little details like outstanding leases on the physical store. I don't have a good feel for what the total costs might be, but I'd expect them to be substantial.

Google can already take on Amazon and Apple in pure digital sales, since they have the existing infrastructure. Taking on Amazon as a retailer selling/shipping physical good is quite another matter.
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Dennis

[DMcCunney]

Originally Posted by Connallmac

To me that is the real question, why would a company that is exclusively online delve into the decaying world of bricks and mortar? Remember what a tremendous flop the Gateway stores were?

Gateway didn't understand retail. For that matter, IBM had retail stores for a while, which also flopped, because IBM didn't understand retail. IBM has always been a B2B company selling to corporations. They never have understood how to sell directly to consumers.

Google might well be interested in the online assets of both companies, but would be fools to go for the brick and mortar operations in the process. People have called Google all manner of things, but "stupid" has never been one of them.
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Dennis