Barnes & Noble’s Interest in Borders Wanes…..So What?

So, Barnes and noble (BKS) “may” not be interested in Borders (BGP) “now” and that has folks running around screaming. Yeah, um…. has anyone looked at the job CEO George Jones is doing there?

First the news from the WSJ:
“Barnes & Noble’s decision not to bid reflects in part the tight lending markets that likely would make it difficult to arrange bank financing. The retailer was also known to be concerned about the length of some of the leases that Borders has signed.

To be sure, Barnes & Noble could change tactics and return with a bid, but it would have to act quickly. Borders hopes to complete the auction by the end of September, according to a person close to the company. At its current trading price, Borders has a market capitalization of only $344 million, and as it’s a cash-flow business, it could be expected to attract some interest from private-equity shoppers.”

Now, lets look. Later in the article.
“Borders currently is cutting costs and reducing overhead, in recent months has continued to trumpet its new prototype stores, which it believes are essential to its future. In addition, the retailer lowered its debt to $591.9 million at the end of its fiscal first quarter ended May 3 from $722.8 million a year earlier.”

Borders problem has always been its debt in recent years. Lowering it 18% in the previous quarter is the most important thing they could do and Jones promised more reductions in the future. The new concept stores are working and the new website in fantastic and will be profitable for the company this year.

I think Barnes & Noble’s decision is more of a matter of its own situation than its desire to own Borders. Barnes did not say “no”, this may be a simple negotiating ploy on their part to attempt to extract a better price. Who knows. There are plenty of interested buyers and even if a sale does not materialize, the direction Jones is taking the company and the moves he is making in a struggling economy will pay off either way.

We will find out more next week when they report earnings. I would expect sales to be sluggish but want to see more debt reduced and are very interested in new store results and web traffic to date since its rollout.

Disclosure (“none” means no position):Long BGP, none

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