Borders Poised to Buy B&N

[tomsem]

To paraphrase Shakespeare, methinks that Google comes to bury B&N/Borders, not to buy them.

[DMcCunney]

Originally Posted by Rebo

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.

I sympathize, but I'm not sure how that might be managed.

Meanwhile, investors with no long term interest in the companies they hold are indeed a problem. There have been cases of management led leveraged buyouts to take the company private, precisely to avoid the issues of demands by shareholders whose interest extends as far as the next quarterly statement. (This can be a case of "out of frying pan, into fire", as the sources of funding for such buyouts have their own agendas.)

A good CEO thinks in terms of "Where do I want the company to be in 5 years? 10 years? 20 years?" His big challenge is dealing with a board of directors made up of shareholders representatives who don't share the long term view. One former CEO suggested always serving a heavy lunch before a board meeting, because it was a good assumption an older director would fall asleep during the meeting if you did so. No one would want to embarrass the old chap by waking him, but no important business could be transacted if he was asleep, so...
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Dennis

[SensualPoet]

Originally Posted by SensualPoet

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 ....

Today, B&N closed at $15. If anyone who currently owns the stock thinks they are going to be paid $16 for it and sold today at $15 ... doesn't believe they ARE going to be paid $16 for it.

And who are these "8 to 10" bidders for B&N that the B&N board is currently "considering"? Clearly, current stock holders don't believe THEY are going to pay more than $16 a share either ... in others, they aren't hanging around for a bidding war. William Ackmann has his bid already filed with the SEC ... these shadowy figures haven't said bupkis. Again, more info to come and we must be patient but ... I'm just saying ....

[queentess]

Originally Posted by lilac_jive

I'm still a huge fan of Borders (I worked for both companies) and going in to a Borders is a way better experience for me than B&N. I can never find anything to read at B&N, but I always walk out with a ton of books from Borders. The staff is always friendly and are huge readers (but I agree with a previous comment that upper management was bad at least a decade ago at Borders, but the new CEO may have shaken things up since).

That being said, I am not in favor of the two merging. I just want Borders to do better in the marketplace.

I've had the exact opposite experience; guess it depends on where you're located? I love my B&N, but the Borders near me is always more interested in pushing dvds and cds than books, and the staff is usually surly or downright ignorant about books. (And I'm no expert; it doesn't take much to impress me.) Everything I want at Borders is usually a special order (which I then have to go back to pick up), but B&N stocks it.

And I have very fond memories of Waldenbooks as a kid. Every time we went to the mall my brother and I each got to pick out a book. But the last time I went to one, it was just sad. I don't remember if they used to only carry best sellers, but that's all they were doing before their demise, and that just wasn't enough for me.

[DMcCunney]

Originally Posted by queentess

I've had the exact opposite experience; guess it depends on where you're located? I love my B&N, but the Borders near me is always more interested in pushing dvds and cds than books, and the staff is usually surly or downright ignorant about books. (And I'm no expert; it doesn't take much to impress me.) Everything I want at Borders is usually a special order (which I then have to go back to pick up), but B&N stocks it.

I have a similar experience. The Borders near me has a decent selection, but I'm also in walking distance of a B&N "superstore" - four floors, and if it's in print, there's a good chance they have it.

And I have very fond memories of Waldenbooks as a kid. Every time we went to the mall my brother and I each got to pick out a book. But the last time I went to one, it was just sad. I don't remember if they used to only carry best sellers, but that's all they were doing before their demise, and that just wasn't enough for me.

Waldenbooks is a unit of Borders these days. Their particular niche is malls, and they are almost exclusively located there. Many Waldenbooks outlets have been renamed Borders Express stores, and the concentration on best sellers is no surprise. Brick and mortar retailing is about sales per square foot, and they'll concentrate on stuff that sells in volume.
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Dennis

[bobavey]

The Barnes & Noble stores in this area are much larger and nicer than the competing Borders.

[SensualPoet]

Well, Borders just reported a dismal Q3 ending Oct 30 ... hardly the profile of a white knight about to swoop in and save the damsel B&N. Nonetheless, if the hedge fund has $1 billion burning a hole in its pocket, Borders and B&N may yet dance. But same store sales for Borders were down 13% ... crickey!

[DMcCunney]

Originally Posted by SensualPoet

Well, Borders just reported a dismal Q3 ending Oct 30 ... hardly the profile of a white knight about to swoop in and save the damsel B&N. Nonetheless, if the hedge fund has $1 billion burning a hole in its pocket, Borders and B&N may yet dance. But same store sales for Borders were down 13% ... crickey!

I think Pershing is looking at throwing good money after bad. As you mentioned, they own 41% of Border's stock, counting in warrants. I don't know what they paid to get that stake in the first place, but I'm quite sure they are watching the value of their stake plummet.

What can they do? They can watch the value decline to nothing. They can attempt to sell, and take nasty losses. (Who would buy Borders stock?) Or they can roll the dice, finance a takeover of B&N, and hope to boost the combined entity's stock price enough to sell out at a profit.

Crikey indeed.
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Dennis

[SensualPoet]

But you have to believe $250 million would be a much cheaper investment in getting Borders on track than four times that to merge with another weak player ... and probably still need more capital after that to get things moving.

[Connallmac]

Originally Posted by SensualPoet

But you have to believe $250 million would be a much cheaper investment in getting Borders on track than four times that to merge with another weak player ... and probably still need more capital after that to get things moving.

But that assumes that they want to own it long enough for $250 million to be spent and turn things around. Heck, that even assumes that it could be turned around. Given the losses at B&N stores as well, I think you're swimming against the tide. I think they would only see limited benefits from consolidation and downsizing with B&N that might stop the immediate hemorrhaging, perhaps enough to sell it and realize a profit. But long term they need to re-envision the bookstore. I think the real white knight for B&N is Starbucks.

[DMcCunney]

Originally Posted by SensualPoet

But you have to believe $250 million would be a much cheaper investment in getting Borders on track than four times that to merge with another weak player ... and probably still need more capital after that to get things moving.

I would, if I thought that $250 million would get things back on track.

But I don't see that as a move Pershing would make. That's the sort of thing a major investor in for the long term makes, and that does not describe a hedge fund. Those guys want to buy distressed assets cheap, do things that boost the price of the stock, then sell their holdings high and cash out. They are short term players. Their challenge is to boost the stock price, and be able to sell high.

Do you think a $250 million investment would do that?
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Dennis

[DMcCunney]

Originally Posted by Connallmac

But that assumes that they want to own it long enough for $250 million to be spent and turn things around. Heck, that even assumes that it could be turned around. Given the losses at B&N stores as well, I think you're swimming against the tide. I think they would only see limited benefits from consolidation and downsizing with B&N that might stop the immediate hemorrhaging, perhaps enough to sell it and realize a profit. But long term they need to re-envision the bookstore. I think the real white knight for B&N is Starbucks.

Now that's an interesting idea.

The relationship already exists. My local Borders is a "Borders Bookstore and Cafe", and my local B&N also has a cafe area. In both cases, I believe Starbucks operates that concession.

The current model is "Use the cafe the get the customers to come in for coffee and snacks, and buy books while they're at it." The revised model might be "Use books to get the customers to come in and buy coffee and snacks".

There's an indie bookstore in NYC that may well make more on food and drink than book sales, so the model is possible.
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Dennis

[Fbone]

I wonder if smaller stores is the answer.

[Connallmac]

Originally Posted by DMcCunney

Now that's an interesting idea.

The relationship already exists. My local Borders is a "Borders Bookstore and Cafe", and my local B&N also has a cafe area. In both cases, I believe Starbucks operates that concession.

The current model is "Use the cafe the get the customers to come in for coffee and snacks, and buy books while they're at it." The revised model might be "Use books to get the customers to come in and buy coffee and snacks".

There's an indie bookstore in NYC that may well make more on food and drink than book sales, so the model is possible.
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Dennis

I think as, Fbone pointed out, this would need to be accompanied with a reduction in the floorspace that the remaining stores would occupy. I would probably shrink the size of the music/dvd sales area to focus on more indie and hard to find content, almost more of a specialty shop; focus on the things I can't get at Best Buy or get from an on demand video service. Perhaps also invest in some very knowledgeable staff.

[jasonkchapman]

Originally Posted by Fbone

I wonder if smaller stores is the answer.

I think they can be if, combined with the cafe and events, you can turn them into a chain community-centric places with an indie bookstore feel. The problem is that you can't just turn out store managers from a mold. The stores would have to run like indie bookstores. Each one would be a little bit different, in keeping with its community environment.