From WSJ
Barnes & Noble Draws Fire Over Plan
To Buy Ingram Book for $600 Million
By PATRICK M. REILLY
Staff Reporter of THE WALL STREET JOURNAL
NEW YORK -- Barnes & Noble's acquisition of Ingram Book Group,
the country's largest book wholesaler, has sparked a wave of criticism
from a prominent industry group and a Barnes & Noble rival.
On Friday, Barnes & Noble, the country's largest book retailer, said it
would pay $600 million to acquire the Ingram Book Group, a move
expected to bolster Barnes & Noble's ambitious Internet bookselling effort
as well as its book superstore operations. Leonard Riggio, chairman of
Barnes & Noble, said the acquisition "gives us compelling strategic
advantages in the Internet business."
Ingram Books, a unit of Ingram Industries
Inc., based in Nashville, Tenn., has annual
sales in excess of $1 billion from
distribution of consumer books,
books-on-tape, textbooks and specialty
magazines to an array of customers,
including Barnes & Noble, Borders
Books and Music, independent
bookstores, libraries and even Barnes &
Noble's Internet rival, Amazon.com Inc.
Under the agreement, Barnes & Noble,
with annual sales of about $3 billion, will pay $200 million in cash and
$400 million in stock for the book wholesaler.
Critics called the acquisition anticompetitive, but news of the deal pushed
up Barnes & Noble stock price Friday. In trading on the New York Stock
Exchange, Barnes & Noble shares rose almost 11%, closing at $34.25, up
$3.375, on heavy trading volume.
Indeed, just last month, some book-industry executives were alarmed
when Bertelsmann AG, the world's largest book publisher, paid $200
million for a 50% stake in Barnes & Noble's Internet book-selling unit,
barnesandnoble.com. Bertelsmann owns the largest U.S. book publisher,
Random House Inc.
No Problems Expected
Barnes & Noble shrugged off suggestions the deal represents an
anticompetitive alliance within the book industry, saying it wouldn't
interfere with Ingram's wholesale operations. It noted that John R. Ingram
will continue to serve as chairman of the wholesaler, as well as be named
vice chairman of the Barnes & Noble board. Mr. Riggio said he wasn't
"anticipating antitrust problems."
Monday, Barnes & Noble executives will submit the acquisition for
clearance by the Federal Trade Commission, a process that is expected to
take 45 days. The government rarely tries to block such "vertical" mergers;
regulators are more likely to seek conditions designed to assure that
Barnes & Noble wouldn't get unfair pricing or other advantages over its
rivals.
Ingram immediately expands the size of Barnes & Noble's
book-distribution system and is expected to vastly increase the speed with
which Barnes & Noble gets copies of books to customers.
Currently, Barnes & Noble services its 504 superstores and 507 B.
Dalton mall-based bookstores from one distribution center located near
Princeton, N.J. Barnes & Noble said Ingram will become a major part of
its distribution network, "greatly expanding the company's reach" through
11 strategically located distribution centers.
The company estimates that more than 80% of the company's online and
retail-store customers will be within overnight deliveries of the distribution
locations. Looking to ease fears on consolidation in the book industry,
Barnes & Noble said Ingram will continue to supply books to current
customers including independent bookstores, specialty retailers, and
libraries, in the U.S. and abroad.
Ingram is considered the largest wholesaler with distribution centers
located in Tennessee, California, Virginia, Connecticut, Colorado, Indiana,
and elsewhere.
Booksellers Assail Deal
The American Booksellers Association, the industry trade group that
represents independent booksellers, lashed out at the acquisition, calling
the deal "a devastating development that threatens the viability of
competition in the book industry, and limits the diversity and availability of
books to consumers." ABA said its board would call on federal authorities
to investigate the transaction.
The ABA noted that Ingram is a primary distribution source for the vast
majority of ABA member stores. "The deal would make independent
bookstores virtually dependent upon their largest competitor," the ABA
statement read.
Amazon.com noted that many independent bookstores rely on Ingram as
their sole source of supply for books. "The combination of the country's
biggest book retailer with its biggest distributor, and, given the recently
announced Bertelsmann transaction, its biggest publisher group,
undoubtedly will raise industrywide concerns," Amazon.com said in a
statement.
Barnes & Noble noted that independent booksellers constitute a
substantial portion of Ingram's business and are responsible for a major
share of its profits. "It is ludicrous, therefore, to claim that, in making this
acquisition, Barnes & Noble will do anything but try to increase its
business with other booksellers, including every independent that chooses
to buy from us."
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