ne 2, 1999
Barnes and Noble Poised to Turn to 'Plan B'
Related Link
Staff of F.T.C. Is Said to Oppose Barnes & Noble Bid to Wholesaler (June
1)
Book Chain's Bid to Acquire Big Distributor Is Under Fire (April 5)
In an Age of On-Line Booksellers, Distribution Is the Key (November 18,
1998)
Barnes & Noble to Acquire Nation's Top Wholesaler (November 7, 1998)
By DOREEN CARVAJAL
EW YORK -- With its planned acquisition of the nation's largest book
wholesaler in jeopardy, Barnes and Noble is poised to carry out what
its top executive calls an alternative "plan B" if its $600 million deal
to buy Ingram Book Group collapses.
Leonard Riggio, the chief executive of Barnes & Noble, made the comments
following published reports that the Federal Trade Commission had
concluded that the planned union violated antitrust law -- a conclusion that
has left the book industry pondering whether the company has been damaged
in its pursuit of online primacy.
Last November, when Barnes & Noble announced its intention to buy
Ingram, top company executives said that acquiring Ingram's 11 distribution
centers would give Barnes & Noble more cost-efficient distribution and the
ability to provide faster delivery, one of the critical elements in the battle
for online book customers who expect delivery within days.
On Tuesday, Riggio, saying that he was surprised by news reports that the
trade commission staff opposed the union, noted that the company was
prepared with an alternative plan to open warehouses in the Reno, Nev., area
and in Tennessee that would exclusively serve its online venture,
Barnesandnoble.com.
"We've had what I would refer to as 'plan B' from the first day that we filed
and certainly have been looking at this throughout the process of the review
by the FTC," Riggio said. "And given the fact that almost seven months have
passed, you know we've always known there could be some chance that it
would be turned down."
In the last few months, the company has been quietly pursuing a second
strategy, with Barnes & Noble executives scouting for real estate for
warehouse space in the Reno area, which has become a growing hub of book
distribution for other wholesalers and Amazon.com.
Wall Street analysts are already raising the possibility that Barnes and Noble
can proceed by expanding its own distribution network without buying a
wholesaler. But they said this strategy could slow the company down in the
competition with Amazon.com, which now dominates the online market.
Riggio said that the company could open the new warehouses within the next
12 months, adding more than 750,000 square feet to its existing New Jersey
warehouse capacity of 1 million square feet.
But despite these detailed plans and even though the trade commission rarely
overturns the recommendations of its staff, Riggio was not ready to give up
on the original concept of a union with Ingram. He said that executives and
lawyers for both companies intended to discuss their next move in a
conference call Tuesday evening.
For its part, the Ingram Book Group also expressed surprise about reports
of an unfavorable FTC conclusion.
"Ingram has been in the midst of what is a confidential process and is not in
the habit of commenting on it while it's under way," said Keel Hunt, a
spokesman for the Tennessee-based company. "That said, we remain
confident that if this transaction is viewed objectively, and within the context
of today's changing book marketplace, that the commission will clear the
way for the acquisition."
The chief executive of the newly public Barnesandnoble.com, Jonathan
Bulkeley, said that if the deal does collapse the online bookstore will not be
affected. He said that the bookstore will continue to do business with Ingram
and maintains business ties to other wholesalers. He added that 60 percent of
Barnesandnoble.com's distribution is carried out through the company's own
center in New Jersey.
Analysts have speculated that Barnes & Noble tried to buy Ingram in a chess
move to prevent Amazon.com from buying the wholesaler. They say that
Barnes & Noble could build up its own distribution network probably at a
cheaper price than its announced $600 million purchase of Ingram.
But the problem is that building up a network can take more time than
buying one. And meanwhile, Amazon.com is moving rapidly to expand its
own distribution and warehouse space.
"Personally, I think things have been moving so quickly that it's hard to
know that Barnes & Noble's plan B isn't better than their plan A," said
Charlie Winton, the chief executive of the California-based distributor,
Publishers Group West, which is also opening a new warehouse in Reno. At
the time Barnes & Noble announced its intention to buy Ingram, he said, "it
seemed like a powerful move." But he added, "Who's to say at this point
what the Ingram business is that they were buying, and whether they are
better off opening their own distribution centers."
Riggio said the company had decided over several months that it needed
warehouse space that was more specialized than Ingram's centers. It needed
warehouses specifically fitted for Internet purchases, which require more
time-consuming picking and packing than the larger orders placed by
bookstores.
Riggio said he still considers Ingram "a great company to own" because of
"its return on investment, its delivery service functions and whatever
synergies can be extracted by reducing the duplication of certain efforts."
Several analysts said that the reports of the FTC's negative view of the deal
were not necessarily surprising given the organized opposition to the union
by the Association of American Booksellers, which represents independent
stores, and the New York-based Authors Guild.
"The absence of this deal isn't any sort of critical body blow" to Barnes &
Noble, said Mark Mandel, a senior retail analyst with ABN AMRO in New
York. "I don't know specifically what their plan is, but clearly they have to
establish a deeper distribution capacity in order to compete with
Amazon.com."
With the FTC staff's recommendation, the agency's review will continue
until a closed vote by the commission this month. Over the next few days,
lawyers for the two companies will have the opportunity to meet
individually with the four FTC commissioners.
The reasoning of the federal investigators will not be known until a final
commission vote.
On Tuesday, shares in Barnesandnoble.com stock fell by 3 3/16, or 14
percent, to 20. Thestreet.com's index of Internet stocks fell by 4 percent. |
