A gauntlet was thrown in the book retail world last week when Google (NASDAQ: GOOG) unveiled its plans for Google Editions, the company’s long gestating e-book business. The ubiquitous technology company’s new service is not tied to any specific handheld device or downloadable app but would be accessible via any connected platform with a web browser.
Google Editions threatens not just to further diminish the strength and fortunes of physical book retailers like the beleaguered Borders (NYSE: BGP), but even those retailers with a strong existing e-book business like Barnes & Noble (NYSE: BKS). It’s appropriate then that shareholders in those two companies are seeking asylum inside a new union designed to stave off the looming threat of a book industry ruled by digital powers like Google, Amazon.com (NASDAQ: AMZN), and Apple Inc. (NASDAQ: AAPL).
Borders Group investor William Ackman is the manager of a hedge fund that is reportedly preparing to offer a $960 million, or $16 per share, bid to acquire Barnes & Noble. The move is unexpected, especially considering that Borders has a market capitalization of less than $100 million compared with Barnes & Noble, with a market cap of $865 million.
Speculation since Barnes & Noble put itself up for sale last August has been that the company is in at least some financial trouble. At the time, Barnes & Noble board chairman Leonard Riggio said that the company was merely “considering putting together an investor group to acquire the company,” but it was unclear if this was because the company was in dire straits or if it was because Riggio and the board were merely trying to prevent investor and shareholder Rob Burkle, who already controlled a 19% stake in the company, from gaining control of B&N.
Borders primarily seems to offer an increased physical retail presence, and the last thing Barnes & Noble needs going forward is more stores . The company recently projected losses between $.75 and $1.15 per share for the 2011 fiscal year, losses fueled by the ongoing decline in physical book sales. A proxy statement by Barnes & Noble filed in September said that the company expects physical book sales to fall from $20.5 billion in 2009 to $19 billion by 2014, while digital sales should grow to $3.4 billion over the same period. Barnes & Noble has made great efforts in the past year to grow its digital books business with an emphasis on promoting its Nook e-reader device. When it released the Nook Color recently, Barnes and Noble claimed to have taken a 20% share of the digital books market. Given that Borders relies on the third-party group Kobo for its meager e-book business, it’s hard to imagine that Barnes & Noble sees the company as an acquirer who could help bolster their digital ambitions.
Shares in both companies jumped up significantly following the announcement of the possible acquisition. Barnes & Noble closed yesterday at $15.00, a rise of nearly 15% since last week. Borders Group share price closed at $1.38 on Wednesday, a rise of 28 percent since last Friday. Borders is set to announce third quarter results today after the market close.
As of this writing, Anthony Agnello did not own a position in any of the stocks named here.
