The big bookstore news of the day is that Barnes and Noble is looking to sell themselves. Everyone is wondering who or what will be snatching up B&N, with rumors and speculation flying. Who are the likely and unlikely suitors? Here’s my take, from least likely to best fit.
Microsoft (or Apple, or some other pure technology company):
This is a completely insane idea. If B&N were solely looking to sell the ebook division, I could see Microsoft being a good fit. But why would Microsoft, or any pure tech company, be interested in buying 700+ retail bookstore locations? Putting aside the false notion that the only value left in B&N is in the ebook division, why would any company want the expense of dismantling the retail arm? It’s not as simple as just shutting everyone down. There’d be a huge severance cost for employees who were laid off, not to mention the expense of breaking leases and selling out all the book inventory. It’s just not realistic, and it would more than wipe out any value from the ebook division.
Besides, it’s still too early to sing a funeral dirge for paper books. PC World pointed out that in the same month that ebook sales, on the whole, outstripped hardcover ones, hardcovers still brought in over $200 million in sales, versus around $29.3 million for ebook sales. eBooks may be outselling hardcovers title for title, but there’s a much larger amount of hardcovers out there, especially when you factor in kids books (which typically don’t have as much of an ebook presence.) So while yes, over time ebooks are going to be a huge chunk of business, they aren’t worth abandoning the time-tested paper book model quite yet.
Finally, there’s one more reason why a tech company wouldn’t want to buy B&N and just jettison the paper business. One of the attractive things about Barnes and Noble is that they have an excellent and deep relationship with the publishing world. The same publishing world that HATES the concept of ebooks gaining too much power. What good is buying the ebook division and all those lucrative relationships with publishers if the answer is to turn around and give them a metaphorical raised finger?
Amazon or Borders merges/buys Barnes and Noble:
This is a bit more likely, but has its own set of issues. Amazon’s biggest stumbling block is taxes, since a physical presence in just about every state means they won’t be able to skip sales tax anymore. On the other hand, there are the aforementioned publisher relationships; being twice as big has it’s advantages when it comes to negotiating better prices.
Still, there’s the question of whether Amazon would want a physical presence; currently, their system of web-only is doing quite well for them, and there are some very practical expenses that come with owning a retail chain (like leases, electric bills, etc., which all contribute to tighter margins). And there’s the issue of the government getting concerned about anti-trust regulations. Amazon holds a large portion of the paper and ebook markets, and owning B&N would give them a nearly insurmountable majority hold. Whether it would hold up to scrutiny is debatable, and something that would be under considering if Amazon seriously pursued B&N.
Then there’s Borders. It wouldn’t solve all B&N’s problems since Borders certainly has debt and investor confidence issues of their own. On the other hand, consolidating against Target, Best Buy, and supermarkets all selling bestsellers, plus the continuing threat of Amazon and Apple, might give a combined company (Borders and Noble?) the overall customer base to hold their own.
Given the weakness in the bookstore market, I don’t necessarily think a Borders/B&N mashup would hit too many anti-trust roadblocks. It might still hit some, but the biggest issue hands down would be real estate. Borders and B&N tend to target the same markets, so if they merged they’re likely to have stores very close to one another. What do you do when the combined company has two stores within 2 miles? Shut one down? Take on the expenses of breaking leases, moving employees, etc? Or let them both run and split the customer base? Not to mention the expense of breaking Borders’ contracts with Kobo and Seattle’s Best (since B&N wouldn’t want to share ebook sales profits if they have a more lucrative in-house option, and the Starbucks/B&N partnership is a far stronger brand name). Even in-house remodels are extremely expensive and time-consuming, so merging the two companies stores and brands would take time B&N and Borders may not have.
Private Equity:
The Riggio Brothers have controlled Barnes and Noble for many years. Currently, they have what TheStreet.com called a “poison pill” that allows them to block an activist investor from taking more than 19% of the company without invoking certain shareholders rights. Why would two men who want that kind of control give it up to a third-party?
Most telling, The Street quotes Riggio as saying:
Barnes & Noble’s founder and biggest shareholder, Leonard Riggio, has also told the board he would consider being part of a wider investor group that could buy the company. “I fully support the Board’s decision to evaluate strategic alternatives at this time,” Riggio said in a statement. “Regardless of whether I participate in an investment group that buys the company, I, as well as the entire senior management team, am willing and eager to remain with the company and see it through the challenging years ahead.”
That sounds like someone who wants to keep his hands on the reigns, not give it up to another company. Taking the company private through a group of investors would potentially let Riggio remain in control, buffer B&N from constant market speculation, and give them the chance to better revamp the company in light of the new challenges it has faced with ebooks and slowing paper book sales.
What do you think B&N is planning? Do you have a company or buyer in mind for them? Share your thoughts below!