Plenty of Bidding for Borders

The biggest part of this news is not the possible Barnes and Noble (BKS) bid for Borders (BGP). Rather, the big news according to the Wall St. Journal, is that 30 interested parties (including strategic buyers and private equity firms) have either signed confidentiality agreements or are in talks to sign agreements so they can look at a bid for Borders.

There are some anti-trust issues with a possible BKS bid. Amazon (AMZN) is the #2 book seller with 15% of the market and a BKS, BGP combo would have over 30%. Based on recent results (Whole Foods (WFMI) & Wild Oats (OATS), XM (XMSR) & Sirius (SIRI)) however, even if the government did object, chances are the merger would still eventually go through anyway.

On Tuesday, Carlye's David Rubenstein said that, far from being dead, private equity deals in the $2 billion to $4 billion range will take precedence. "We are casting our net wider for $2 billion to $4 billion deals that will require little or no debt" said Rubenstein. He continued, "I think that the bottom has been hit in terms of private-equity investing activity and you're now beginning to see the upward swing".

Borders has a current market cap of $350 million and $580 million in debt. A deal that gave shareholders $12 a share would come in at $1.3 billion and change. At this price, the number of buyers who could purchase the chain is plentiful and perhaps the reason for the wide interest.

30 potential buyers will make for a very interesting and competitive bidding process and is very good for shareholders.

We bought shares at $5 and change looking for this very possibility, not as a long term permanent holding. While sure this would eventually happen, I thought it was far more likely towards the fall as the Ackman financing and dilution deadline approached.

Some more thoughts on Barnes & Noble and Borders

The timing of this is odd as Barnes and Noble is scheduled to release results and have its earnings call today. Borders has its annual meeting today also. Next Monday and Tuesday feature borders Q1 results and earnings call respectively.

It is very "coincidental" this news leaked out after months of silence just before both companies are scheduled to speak to the public and media...no?

Another thing that Borders does have is 1.75 million (and growing) members in its "Borders Rewards" program. These are the "book people" and are the highest valued customers due to their purchasing frequency.

Back in March the following exchange took place during the earnings call:

Bill Armstrong - C.L. King & Associates: "Got it. Okay, obviously one of your biggest competitors, Borders, had a big announcement this morning. Would there be any interest on Barnes & Noble’s part in potentially acquiring Borders?"

Mitchell S. Klipper: "We haven’t been approached by Borders’ investment bankers and if we are, we’re certainly take a good look at the company and put it under review."

Disclosure: Long BGP.

Comments

[CrossProfit]

Todd,
How do you get to $12 per share?

We get to $8.50. See:
www.crossprofit.com/vi...

Just based on the basics for FY2008 (ended February 2008) what multiples are you applying and to what? We're not asking for a full breakdown, just a rough ballpark - back of the napkin kind of calculation. Seriously, you're a smart guy and we would really like to know because obviously we are missing something big here (and it wouldn't be the first time!).

Income Statement
Total Revenue 1,347.10 3,820.90 3,723.60
Gross Profit 385.80 936.50 950.80
Operating Inc 125.10 6.60 8.50
Net Income 64.70 -157.40 -151.30

Balance Sheet
Total Current 1,506.00 1,506.00 1,723.60
Total Assets 2,302.70 2,302.70 2,613.40
Total Current 1,467.80 1,467.80 1,595.90
Total Liabilities 1,825.80 1,825.80 1,971.40
Total Equity 476.90 476.90 642.00

Cash Flow
Net Income/Starting Line 64.70 -157.40 -151.30
Cash from Operating Activities 273.70 94.10 46.90
Cash from Investing Activities -28.80 -127.50 -182.60
Cash from Financing Activities -242.70 -9.40 173.60
Net Change in Cash -4.50 -47.60 35.90

Key Stats & Ratios
Quarterly(Feb '08) + Annual(2008) + Annual TTM
Net Profit Margin 5.32% -0.48% -0.48%
Operating Margin 9.29% 0.17% 0.17%
EBITD Margin - 3.05% 3.05%
Return on Average Assets
11.58% -0.75% -0.75%
Return on Average Equity
64.63% -3.31% -3.31%

Thanks,
CrossProfit

[maz]

How do you get 1.75m Borders Rewards members? Here's a section from the cc

How about open rates on your e-mails on reward members. Can can you talk about what's going on there?

Ed Wilhelm - Borders Group Inc. - SVP, CFO

They're really holding up about the same as they were. They're running somewhere in the mid 20s percentage wise and this is about where they've been and the program continues to grow and we're over 26 million members now, and growing maybe 27 now and we're still growing at about 140,000 a week on this, and so it continues to grow

[todd su]

maz,

1.75 was from an email they sent me......

cross:

email me and I will send you one

[todd su]

maz,

1.75 was from an email they sent me......

cross:

email me and I will send you one

[GeorgeBowser Jr]

I have a Borders Reward account, but have not used the card for the past 7 months. I go to Amazon.com instead for purchases. I think someone will scoop this company up in bankruptcy, or at least wait until the stock drops below $2, that way their valuations for purchasing can be lower (Ex. JP Morgan and Bear Sterns)