It seems there are four options for a purchaser of Borders (BGP).
1- Barnes and Noble (BKS)
This has been talked about fr a few years now. The theory being that a combined entity would be better able to compete with Amazon (AMZN) without the cannibalization of the foot traffic market the two currently compete for.
2- Indigo-
Canada’s largest bookseller has been mentioned as a possible suitor. This has some interesting story-lines to it. Indigo leads in market share in Canada. Here is the interesting part. Indigo’s CEO Heather Reisman knows Borders well. She lead the attempt to expand Borders into Canada in 1996 that was blocked by the Canadian government. She eventually left Borders,started Indigo, and then took over Canadian rival Chapters in 2001, claiming market dominance in the country. A combination of the two would lead to a North American powerhouse and with the controlling interesting being Canadian, would see no objection from that country’s government.
3- Pershing.
Ackman will already own the international operations soon enough, why not just convert his soon to be 40% stake into total ownership, do what he wants to it, and then spin it out in a few years when the climate is better?
4- Nothing.
It is possible for the company to continue on its own should no legitimate offered come about as the Ackman loan allows for uninterrupted operations through 2009. This option is not likely though. It was probably done to give the company some bargaining power in negotiations.
No matter what happens, Pershing will own the international operations on Australia, New Zealand, Singapore and Britain. Having those operation off the books may clear the way for Indigo to scoop up the US assets at a reduced price.
Borders is a profitable business that is turning around albeit very slowly in the current environment. With that being said, there is a market for the business for a buyer.
Again, the good news for current shareholders is Ackman’s interest. Being the largest shareholder and essentially in control of the sale process, shareholders can be assured of a good deal should one come about.
Disclosure (“none” means no position):Long BGP, none
5 replies on “Who Will Buy Borders?”
It seems to me that a non-Pershing buyout would need to be done before April 4. Once Borders borrows the money from Ackman, and Ackman gets his warrants for 20% of the shares, a buyout doesn’t make much sense. Why would BKS or Indigo pay $10 (for example) per share a week or two after Ackman just got 20% of the stock for $7?
One buyer that makes sense that you didn’t mention is Berkshire. Buffett can obviously negotiate a deal quickly (typically in 5 minutes), and BGP seems to be a business that’s right up his alley. He obviously loves to read, and he could start selling See’s Candy in all the BGP stores (synergies!).
I’m long BGP, but am not too hopeful of a buyout. I’m hoping BGP can at least find another buyer for the foreign operations, as I think they are worth much more than the $125 million that Ackman is offering.
It irritates me that BGP spent hundreds of millions buying back stock when it was trading in the $20s a couple years ago and is now selling 20% of the company for $7 a share. I’d have rather seen BGP issue a rights offering to all shareholders, and pay Ackman some amount to backstop it, then issue the warrants.
Altucher’s Blog Watch: March 26
Reference to your post on TheStreet.com
“I love a good Borders(BGP) bookstore. Particularly the ones with the Dean & Deluca cafes (like on Broadway and Wall). Here are four potential buyers for BGP, including Barnes & Noble(BKS)”
saw that….
altucher is pissed at me so he refuses to link to valueplays…despite saying he would…
he just links to me all over the web…
kevin,
bgp is not a Berkshire business ans to be honest, i think its current size is way below the current Berkshire threshold for consideration.
Forget about option 1. Barnes & Noble is not interested in Borders and such acquisition would make no sense for them. It would create a huge redundancy in store base at what looks like the beginning of a recession. Plus Borders has exposure to CDs and DVDs bigger than Barnes & Noble’s, and that’s a rapidly declining segment. Pershing Square bought Borders hoping to merge it with Barnes & Noble, but that outcome is looking less and less likely.