The One-Time Leader is Facing Merger or Buyout

The popular book chain Borders Group, Inc. is in fight or flight mode after its falling shares caused the book retailer to put itself up for sale, borrow money from Pershing Square Capital Management LP and hire J.P. Morgan Securities Inc. and Merrill Lynch & Co. to review its options—all within a week’s span. Borders Chief Executive George Jones says of the company’s alternatives, “We could sell parts of the business, or we could sell the entire business.”

Borders has lost market share to large discount retailers Wal-Mart Stores Inc., Costco Wholesale Corp. and online retailers including Amazon.com. Borders suffered another setback last week when a sale of its Australia/New Zealand businesses fell through. Because of the idle sales, Borders may have to consider a merger with rival Barnes & Noble Booksellers. The merger could potentially save Borders millions of dollars.

So what does this mean for the publishing industry? Depends on who you ask. Publishing insiders see the hypothetical merger of the #1 and #2 book retailers in the world as bad news for publishing houses large and small. The publishing industry is in need of more outlets not fewer. The merger of the two book chains means fewer options and higher costs for an industry that is constantly varying. Another potential issue facing publishers is the inevitable returns on books that a declining Borders will have to make.

Some small publishers are seeing a merger or buyout in a different light. Publisher and CEO of small press SterlingHouse Publisher, Inc. in Pittsburgh says of the rumor, “As in life, all is not equal when it comes to shelf space, bookstores and small publishers. Many small publishers had to learn how to survive without the major chains, so they are unaffected by the possible merger or buyout of Borders.”

When asked what she viewed as the cause of Borders’ current problems, Sterling answered, “I don’t believe the blame should fall on Costco or Wal-Mart; after all, the superchains assisted in the demise of the independent bookstores. I don’t think you can point your finger at one reason, but rather at a host of things, ranging from changing technology in the trade to forgetting why you are in the book business.”

Barnes & Noble COO Mitchell Klipper has responded to the rumors, saying at the end-of-year Barnes & Noble conference call, “We haven’t been approached by Borders investment bankers. If we are, we’d certainly take a good look at the company and put it under review.” With Barnes & Noble publicly acknowledging the rumors and Borders releasing a statement about its state of affairs, all members of the publishing industry are anxiously awaiting the next move by either retailer.

Check back next week for an update on this developing story.