Tag: bgp

Somehow I’m constantly surprised at what the sell side analysts do and don’t focus on. Listening to the BKS Q2 call this morning there wasn’t a single question about Borders (BGP) (fresh topic considering there was an article in the WSJ last week about it) and not a single question about the announcement of the CEO of Barnes & Noble.com (BKS) resigning two days ago. All the street wanted to focus on was what the EPS for the year was going to be so they could slap a multiple on it and write a two paragraph note summarizing the press release.

Yes it’s highly likely that BKS management would have sidestepped the questions but the questions should have been asked anyway. You never know but maybe they would have given us a small bit of information in how they sidestep the questions or just the tone of their voice. Hey look even Colonel Jessup was dying to tell the truth. What’s even more shocking to me is when the sell side analysts are asked some of these question before the call in a private conversation and still don’t follow up on it.

It’s a real shame but in the end I guess it’s my fault…I shouldn’t be surprised!

Earnings transcript

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

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The timing of this one is just really odd..

Barnes & Noble Inc (BKS), the largest U.S. specialty bookseller, said on Tuesday the chief executive of its online business resigned

Barnes & Noble said Marie J. Toulantis’s duties have been assumed by E-Commerce vice president Tom Burke and Kevin Frain, its chief financial officer. The bookseller said Toulantis will remain with the company as a consultant.

Now, this comes just a week after its rival, Borders (BGP) online results became public and BKS said it would not be able to finance a deal for Borders.

The graphs on the previous post show Borders online traffic and conversions surging since going live in June through July 26. One must assume this trend has continued and that Borders gains are coming at the expense of Barnes and Noble, not so much Amazon (AMZN).

Here is the chart:

Borders did a great job on the site and it is being marketed to Rewards members brilliantly. It’s current conversion rate of 5% is up from 2.5% when it was part of amazon and now just behind Barnes & Noble’s 5.9% after only 8 weeks (as of 7/26).

Borders is scheduled to report next week, the 28th. I have a feeling, and I hope the analysts on the call ask a ton of questions about the online results, investors will be happy.

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

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JB sent me a great message this morning about the Barnes & Noble (BKS) and Borders (BGP) article in the WSJ today. It is well worth a read.

“I’m not sure how much I believe about difficultly in getting bank financing. It seems like CVS (CVS) didn’t have a difficult time and Waste Management (WMI) has received positive feedback from banks regarding the RSG offer. Not to mention the fact that BKS is under levered going into a potential transaction. BKS has 96.83mm in debt and netting out cash has 70.75mm in debt. This represents 5% of the company market cap and is only 20.5% of the estimated 2009 EBITDA.

In addition if BKS were to buy BGP for $10/share financing the transaction with debt, the combined entity would only have a Debt/Ebitda of 2.55x and this is exclusive of any synergies and also uses the current analyst estimated EBITDA where the analyst community for the most part doesn’t include the $120mm in SG&A cuts that BGP has announced ($60mm this year and $60 mm next year). So I find it hard to believe that BKS investment bank wouldn’t see this and would be reluctant to lend.

As far as the concern about the length of leases, without further detail on the financials of each location, according to the 10K over the next 5 years on a cumulative basis BGP domestic super stores have 2.2%, 4.9%, 9.6%, 11.2%, 14.5% of the leases expiring and more importantly the company has (on a cumulative basis) 52.4%, 76.5%, 88.4%, 95.1% and 97.3% of the Walden stores coming off lease. This is important b/c the Walden business loses money and is drag on cash flow. So closing these stores would be a big benefit to a combines entity. While many of the super stores overlap with BKS stores I would think that a controlled closing of overlapping stores could be achieved.

The companies share approximately 112 investors. Below is a list of the top 12 BGP investors who also own a position in BKS. I would think that Pershing Square, T2, Brandywine and Hawkshaw all have talked with both companies about the merits of a combined entity.

Shareholders are listed followed by the % of share held in Borders and then Barnes & Noble

Pershing Square Capital Management= 17.5% , 11.9%
Deutsche Investment Management Americas, Inc.= 6.4%, 0.6%
Barclays Global Investors NA (California)= 4.7% , 2.7%
Vanguard Group, Inc. = 3.2%, 3.1%
T2 Partners Management LP= 2.2%, 0.5%
State Street Global Advisors = 2.2%, 2.5%
Citigroup Global Markets (United States)= 2.0%, 0.3%
Millennium Partners = 1.4%, 0.2%
Brandywine Global Investment Management LLC = 1.2%, 0.5%
Hawkshaw Capital Management LLC= 1.1%, 0.5%
Northern Trust Investments = 1.1%, 0.5%
LSV Asset Management= 1.1%, 5.3%

While the deal would be looked at by the government I think ultimately the companies would be allowed to combine using the argument that online retailers are serious competition. Also I’m not entirely sure what the point of the article is tough b/c it goes though all the reasons why it won’t happen but states that BKS could changes its mind.”

I think maybe it was just a slow news day?

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

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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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Reid, Borders, Dimon, Sherwin

– Hey Harry!!! Why not “tackle” the LACK OF OIL…?

– The new site is great

– Read this

– Dividend

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Reid, Borders, Dimon, Sherwin

– Hey Harry!!! Why not “tackle” the LACK OF OIL…?

– The new site is great

– Read this

– Dividend

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Visit the ValuePlays Bookstore for Great Investing Books

This was an interesting interview of the Borders (BGP) CEO and unfortunately way too short..

Jones talks about the consumer, the new direction, Barners & Noble (BKS) and other possible buyers.

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

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In a just filed 8-K, Borders (BGP) details the sale of it Australian stores

Full filing:
On June 4, 2008, Borders Group, Inc. (the “Company “) entered into a Sale and Purchase Agreement (the “Agreement”) with Spine Newco (NZ) Limited and Spine Newco Pty Ltd (the “Purchasers”), newly formed companies affiliated with Whitcoulls Group Holdings Pty Limited (“ARW”), pursuant to which the Company agreed to sell all of the outstanding shares of Borders Australia Pty Limited, Borders New Zealand Limited and Borders Pte. Ltd (collectively, the “Subject Subsidiaries”) to the Purchasers. Funds managed by Pacific Equity Partners Pty Limited (“PEP”) are the principal shareholders of ARW, a leading bookseller in Australia and New Zealand. The following is a summary of the principal terms of the Agreement:
1. The Purchasers will pay the following consideration to the Company:
a. a cash payment of $90.8 million at closing, subject to a final purchase price adjustment to reflect changes in working capital.

b. a deferred payment of $4.8 million, payable on or about January 1, 2009 if certain actual operating results for fiscal 2008 exceed a specified level, approximating 2007 results; and

c. a deferred payment of up to $9.6 million payable on or about March 31, 2009 if certain actual operating results for fiscal 2008 exceed a specified level.
2. The Agreement does not contain any closing conditions, and closing is to occur on or about June 10, 2008.

3. The Agreement contains customary representations, warranties and indemnification provisions.

4. Pursuant to the Agreement, the Company, either directly or through its affiliates, will enter into the following ancillary arrangements with the Purchasers and their affiliates:
a. a Brand License Deed pursuant to which, subject to the terms of such Agreement, the Company will grant to the Purchasers (for no additional cost), perpetual licenses relating to the exclusive use of the Borders trademarks in Borders stores in Australia, New Zealand and Singapore.

b. a Transition Services Agreement (the “TSA”) pursuant to which the Company will provide certain services to the Purchasers for a period of up to 12 months following the closing. The fees to be paid for such services, which will be up to approximately $2.3 million dependent upon the period for which the services are required, are intended to recover the cost of providing the services. In addition, under the agreement the Company will receive certain support services from the Subject Subsidiaries for a period of up to 9 months, up to approximately $0.2 million dependent upon the period for which the services are required.

c. a Purchasing Agreement pursuant to which the Company shall be required, subject to the terms of the agreement, to provide products to the Purchasers for up to 10 years following the closing. The purchase price for products supplied under the agreement will be the Company’s costs plus a mark-up of 3% in years 1 through 3 and 8% thereafter.
5. The Company has four outstanding lease guarantees relating to the Subject Subsidiaries and will have a contingent liability after the sale for those leasehold obligations. The Company did not guarantee the remaining leases of the Subject Subsidiaries, which remain obligations of those entities.
The amounts set forth above are shown in US dollars and, where applicable, are based upon current exchange rates.

The foregoing descriptions of the Agreement, the Brand License Deed, the Transition Services Agreement and the Purchasing Agreement do not purport to be complete and are qualified in their entirety by reference to the full text of such agreements, which are filed as exhibits to this Report and are incorporated herein by reference.
ITEM 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant
In connection with the agreements of June 4, 2008 described under Item 1.01 above, the Company has the contingent liabilities described in paragraphs 3 and 5 of Item 1.01 relating to Borders Australia Pty Limited, Borders New Zealand Limited and Borders Pte. Ltd., which are no longer affiliates of the Company. The following is information relating to the potential amounts of such liabilities:
1. With respect to the contingent lease obligations described in paragraph 5 of Item 1.01 above, based upon current rents, taxes, common area maintenance charges and exchange rates, the maximum amount of potential future payments (undiscounted) is approximately $19.3 million. The Company expects to record a charge of approximately $0.9 million in connection with these contingent lease liabilities.

2. With respect to the contingent tax obligations described in paragraph 3 of Item 1.01 above, the maximum amount of potential future payments (undiscounted) is approximately $7.2 million. The Company previously reserved for this item.

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

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