Monday, December 6, 2010

More Insight re: Borders' Buyout Bid for Barnes & Noble

... even though it's Ackman in the news as the leading figure in the buyout, the tactics have Borders chairman and CEO Bennett LeBow written all over them. LeBow muscled his way into Borders' top position by acquiring a considerable amount of stock and warrants that, when they came due, gave him a 35% stake in the company.

Past precedent shows that LeBow's modus operandi with companies is to buy his way into one, use it in an attempt to buy a bigger company, and sink both businesses in the process. In fact, the potential B&N-Borders merger echoes another M&A disaster from the late 1980s: The LeBow-controlled MAI Basic Four attempted to buy larger competitor Prime Computer in a hostile takeover bid. Things didn't end up so well for either company, as they both ended up filing for Chapter 11 bankruptcy, and LeBow was out of the computer business entirely by 1995.

The timing of Ackman's announcement is also noteworthy. On Dec. 9 -- the last day possible before the SEC starts asking uncomfortable questions about the company's financial status -- Borders will report its third quarter earnings. They're expected to be anemic, certainly much more so than Barnes and Noble's quarterly earnings, which were reported last week and weren't exactly fabulous either. Talk of a merger would certainly wake up otherwise sleepy investors who need all the help they can get to be excited about Borders' future, which even a spectacular holiday season won't be able to turn around. (And indeed, the merger talk has awakened investors: Barnes & Noble shares were trading Monday morning at $2.39, up 18%, at $15.60. BGP stock is up 19 cents, or 18%, at $1.27.) ...