Government Sets Terms in Indigo-Chapters Merger

The potential merger of Chapters Inc. and Indigo continues to move forward now that Canada's Competition Bureau has filed an application for a consent order with the Competition Tribunal dealing with concerns raised by the proposed merger. The bureau released the locations of the 13 superstores and 10 mall stores Chapters and Indigo need to sell in order to merge as well as other rules the retailer will have to adhere to.

Of the 13 superstores, nine currently operated by Chapters will be sold: two in British Columbia, one in Alberta, four in Toronto, one in Quebec and one in Belleville, Ontario. Of the four Indigo stores to be sold, one will be in Alberta, two in Toronto and one in Kingston, Ontario. The 10 mall stores to be sold by Chapters include six in Toronto, three in Quebec and one in Ottawa, Ontario. Any single purchaser of some or all assets must be offered one of three trade names: Classic Books, Prospero or Smithbooks. It was unclear last week whether any buyers were likely to bid on the stores.

Indigo's distribution facility in Mississauga will be sold along with assets of Indigo Online, including equipment software and portal agreements. Indigo retains the right to its online name, intellectual property, brand-specific content and customer lists.

Chapters, Indigo and parent company Trilogy will not be allowed to acquire a retail bookstore outlet in any shopping center or mall in which they already have an outlet for five years. Also for the next five years, the parties will not enforce restrictive covenants precluding other bookstores in the same shopping center if the proposed store has fewer than 3,000 square feet. During this time, they will not renew or enter into new restrictive covenants against outlets with fewer than 8,000 square feet of space. Trilogy, Chapters and Indigo cannot open any new stores for two years unless they committed to do so before February 2001.

For five years, the parties must notify the commissioner if they propose to reenter the business of third-party wholesaling or distributing of trade books to unrelated entities in Canada, and the commissioner may advise them that they are required to sell their interest in such a wholesaler or distributor. Nothing limits them from distributing books or other products to their own stores.

The measures are subject to approval by the Competition Tribunal and, if approved, will become a binding order of the tribunal.