On Thursday, I expressed skepticism about Borders Group Inc.’s (NYSE: BGP) efforts to sell itself in the face of deteriorating fundamentals and a problematic balance sheet.
The New York Times reports on Wall Street speculation over the past year that Borders might sell itself to its more massive rival, Barnes & Noble (NYSE: BKS). “A combination of the biggest and second-biggest booksellers has long been believed to be an invitation for regulatory scrutiny.”
On a conference call, Barnes & Noble COO Mitchell S. Klipper stated that, if approached by Borders, he would “certainly take a good look at the company and put it under review.” The company’s chairman, Leonard Riggio, told the Wall Street Journal (subscription required), “I think it would be the height of irresponsibility for us not to look at something presented to us. If they want us to take a look, we would be pleased to do so. We also feel we would be obliged to do so.”
Well of course they would. Why wouldn’t they take a good look at the company? But ultimately, I think that the better-run Barnes & Noble will take one look at Borders and decide it doesn’t want anything to do with it. The brick-and-mortar book industry is in serious trouble — there’s no real antidote to competition from lower-cost providers like Amazon.com (NASDAQ: AMZN) and even Wal-Mart (NYSE: WMT). Borders is looking to set up its own e-commerce site, but I can’t even envision what competitive advantage it will have going up against an established rival like Amazon.
Barnes & Noble is faring reasonably well and, given the long-term problems facing the industry, I just can’t see any reason for the company to double down on brick-and-mortar book selling, taking on debt to acquire an ailing brand that would need more money to be pumped into it.
Most mergers and acquisitions don’t create value, and I doubt that this one would be any exception. Given the strong track record of Barnes & Noble’s management, I don’t think they’ll make that mistake.
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