Usually in business, it's the bigger company acquiring the smaller one. But, when you're a smaller company and you have a major investor like William Ackman, the normal rules no longer apply as evidenced by the announcement that Borders is considering a bid for Barnes & Noble.
Mr. Ackman's Pershing Square Capital Management, which holds a 37 percent share in Borders, has offered to finance a deal to the tune of $963 million to acquire the chains' larger rival.
The proposed deal is reminiscent, at least in one respect, to Edward Lampert's deal for Kmart to take over Sears. It would have one smaller, struggling retail chain acquire a larger and also struggling business. The two traditional bookstore chains face challenges from Amazon.com, Target and Walmart as well as new competitors in the e-book business, such as Apple and Google.
Mary Davis, a spokesperson for Borders, said in statement that the company supported Mr. Ackman's attempt to forge a merger. "We have previously expressed to Barnes & Noble our interest in such a business combination, and we look forward to continuing those discussions," she said.
Analysts and the market did not seem to be overly excited about the prospects of a Borders/Barnes & Noble deal.
"While we think this is a reasonable offer, we do not anticipate that Leonard Riggio, [Barnes & Noble's] founder, chairman and largest shareholder, will find it sufficient," Michael Souers, an analyst with Standard & Poor's Equity Research, told Reuters.
Borders had no comment.
Discussion Question: What do you think of the proposed merger between Borders and Barnes & Noble? Would the combined companies have a greater chance against big box and online competitors?