Good news for Borders - the B&N - Ingram merger is off.
From Washington Post:
With government regulators poised to block the deal, Barnes & Noble
Inc. yesterday called off its proposed $600 million merger with the
country's largest book wholesaler, abandoning a union that could have
reshaped the retail book industry.
The New York-based chain announced plans in November to acquire
Ingram Book Group, a Tennessee company that sold and distributed $1
billion worth of books last year to stores nationwide. Independent retailers
and electronic commerce vendors vehemently opposed the combination,
arguing that it would force them to buy books from a subsidiary of an
arch-rival – a little like forcing Burger King to buy its french fries from
McDonald's.
The Federal Trade Commission agreed. On Monday, staffers at the
agency reportedly had decided to recommend challenging the planned
merger in court, arguing that it could lead to higher book prices and
prevent new players from entering the fast-growing Internet bookselling
market.
"If Ingram was in the hands of a main competitor, you had to be
concerned about that," FTC Chairman Robert Pitofsky said in an
interview yesterday. "You have to be concerned about where the next
party that wants to get into the market is going to buy its books."
The FTC is signaling that it will continue to cast a skeptical eye on vertical
mergers – those between suppliers and retailers. Throughout the Reagan
era, not a single vertical merger was challenged by antitrust regulators,
Pitofsky said, but the Justice Department and the FTC during the Clinton
administration have either blocked or forced changes to four, including
one between Lockheed Martin Corp. and Northrop Grumman Corp.
"This isn't the initiation of an offensive," Pitofsky said. "But vertical mergers
aren't off the table the way they were in the 1980s."
Officials at Barnes & Noble and Ingram said yesterday that the FTC had
erred by accepting the sometimes emotional objections of independent
booksellers. But facing the prospect of a protracted legal fight, the
companies opted to walk away from the deal rather than spend time and
money on what could have been a losing battle.
"Ultimately, we don't think the consumer was served," Leonard Riggio,
Barnes & Noble's chief executive, said in an interview yesterday. "Here
we are selling books at 10 percent, 20 percent, 50 percent off list price
and the FTC is supporting a group which largely sells those same books at
list price. What's happening here?"
The fight over Ingram was considered a life-or-death struggle by some
independent booksellers, many of which have been squeezed by national
chains and the growth of Internet merchants such as Amazon.com. An
all-out lobbying war against the proposed deal, led by the American
Booksellers Association (ABA), a trade group, swamped the commission
with letters and e-mail.
Many stores planned to sever their relationship with Ingram if the deal
went through, and some had already begun to reduce their orders from the
company. The stores fretted that Ingram would give preferential treatment
to Barnes & Noble, either by divulging sensitive credit information to the
book giant or by increasing its inventory of bestsellers at the expense of
more obscure titles in which they specialize.
"We worried that Ingram would grow to reflect what Barnes & Noble
carried, which are the more commercial books, and we'd no longer be
able to get the small-press offerings that are our bread and butter," said
Barbara Meade, co-owner of Politics and Prose, a Washington
bookseller that buys about 30 percent of its books from Ingram.
The controversy stirred by the Ingram deal also highlights the race now
underway among big players in the Internet book business to build quick
and reliable systems to send books across the country. The warehouses
must be situated near the hubs of overnight carriers such as Federal
Express Corp. and be capable of handling multitudes of small orders from
individual, rather than corporate, customers.
By buying Ingram, which owns 11 warehouses nationwide, Barnes &
Noble would have expanded its network fast and bolstered its fledgling
online site, Barnesandnoble.com. Now, company executives say they will
build two centers on their own, saving money but losing valuable time in
their efforts to compete with Amazon.com. and other electronic retailers.
"It was a shortcut way to get a competitive advantage over its rivals," said
John Glass, an analyst at BT Alex. Brown, a Baltimore investment firm.
"Ingram wasn't critical to their success but now they need to go out and
build warehouses on their own."
Officials at Amazon.com said yesterday they were pleased that the Ingram
deal was dead, but contended that it won't affect their own strategy. The
Seattle company is busily trying to diversify its supplier base and had
announced plans to open four distribution centers even before Barnes &
Noble's play for Ingram.
"Rather than have something as important as shipping handled by someone
outside of the company, we want to focus on that ourselves," said
Amazon spokesman Bill Curry. "And the best way to do that is to have
Amazonians handling everything related to the transaction." |
