Barnes & Noble May Make Borders Bid
A report in The Wall Street Journal (WSJ) has moved into “big if” territory with the revelation that Barnes & Noble, the nation’s largest operator of book stores, is looking into the possibility of acquiring Borders, the number two book store chain.
There are two “big ifs” surrounding this story should the WSJ report be right. Number one is whether any deal between the two chains would pass scrutiny by federal antitrust authorities. Number two, assuming the deal is blessed by the Federal Trade Commission (FTC), is whether it makes sense for Barnes & Noble to pursue it.
“Big if” scenario number one questions whether the combination of the two chains would face a FTC challenge. According to Albert Greco, a professor at the Fordham Graduate School of Business, Barnes & Noble has between a 20 and 22 percent share of the U.S. retail book market while Borders’s share is pegged at between 10 and 12 percent.
Would a single business with a share of 30 to 34 percent be in a position to curtail competition in the marketplace? Would Amazon with a 15-point share, for example, now be unable to compete with the combined entity?
Scenario number two, whether the deal makes sense for Barnes & Noble, is a bit trickier. Borders, which put itself up for sale in March, is clearly struggling and has indicated it may face some liquidity issues. That being the case, the business would probably come cheap but it would also need to be turned around.
The WSJ report appears to come down in favor of a deal. It says, outright, “A purchase of Borders would give Barnes & Noble a chance to significantly boost revenue and profit.” The biggest downsides appear to be the proximity of some Borders’ locations to Barnes & Noble stores and some problematic leases.
Discussion Questions: Does it make sense for Barnes & Noble to acquire Borders? Would such a deal receive approval from antitrust regulators? If the deal were to happen, what would Barnes & Noble need to do to make its newly expanded business a success?