November 10 Update from PW Daily
Taken from PW Daily for Booksellers, the following news story is the most complete coverage to date.
We're a little skeptical of what we see on the Web (is that really Dr. Laura in those photos?), but what to make of a shocking story from the journalistically credible The Street.Com that has B&N buyingIngram?
Calls to each company yielded no-comments. But according to Herb Greenberg's article, B&N and Ingram have been in discussions for several months about a deal that would bring Ingram into the B&N fold for somewhere between $500 million and $700 million.
Industry observers said a deal would be attractive to both companies. Ingram's business with Amazon.com and B&N has been declining ever since both companies expanded their own distribution centers. The drop in business with those major players, as well as the shrinking market share of independent booksellers, might be enough to make the Ingram family decide it was time to exit the book business, which comprises a relatively small portion of their portfolio.
From B&N's standpoint, the company would be buying a state-of-the-art distribution operation that would give it expertise as well as an infrastructure through which it could supply both its stores and online business. The acquisition would also likely reduce returns, as B&N/Ingram could better coordinate their book buying.
Of course, a pact like this would draw the attention of the FTC and the ire of indies. One stat we saw has Ingram distributing two-thirds of the books that go through wholesalers. How will other booksellers react to doing business with a competitor to get important titles? And then there's the Bertelsmann issue. With the publisher buying a chunk of B&N.com, the biggest publisher, bookseller and wholesaler would now share the same bottom line. Book publishing might become two degrees of Len Riggio.
"It's scary," said Warren Cassell of Just Books, Greenwich, Conn. "I buy a lot of books from Ingram. One of the concerns which I would have with this is when publishers have a hot book and they have a choice of sending it to an independent or to Barnes &Noble. There will be no way that I get that book."
Can Anyone Say Dramatic? B&N Buys Ingram
So it's true. The days of speculation end with the shocking announcement that B&N will buy Ingram for a cool $600 mil.
The purchase, which will consist of $200 million in cash and $400 million in B&N stock, will make the entire Ingram Book Group, which consists of Ingram Book Company, Retailer Services Inc., Ingram Periodicals, Spring Arbor Distributors, Publishers Resources, Inc. Ingram International, Tennessee Book Company, Lightning Print and Ingram Library Services, a wholly-owned subsidiary of B&N. The deal is expected to be completed within 45 days, pending approval by government agencies. Steve Riggio, vice-chairman of B&N, said he did not expect any anti-trust problems with the transaction.
Under terms of the agreement, John Ingram will continue as chairman of the Ingram Book Group and will also become co-vice-chairman (with Steve Riggio) of B&N. John Ingram, who will report to B&N chairman Len Riggio, will also join the B&N board of directors.
Sources at Ingram say that the company had planned to make the announcement only after the stock market closed today. Martha Ingram reportedly spent much of this morning sequestered with Ingram executives. Morale wasdescribed by one insider as "pretty low" since many of the people "won't be comfortable with the fit."
Steve Riggio told PW that the Ingram acquisition will help B&N with its plans to "revolutionize the book distribution business in the next century."
He called Ingram a "terrific" company that is an industry leader in the distribution business, with the best systems and the best logistics. Riggio said that B&N plans to stock every book that is in print in its warehouse system, and that it also plans to expand Lightning Print's on-demand business. "We think this is great news for book lovers everywhere," Riggio said. The addition of Ingram means that more than 80% of B&N's retail and online customers will be within overnight delivery of one of Ingram's 10 locations. B&N is dropping plans announced earlier this year to open two new distribution centers.
John Ingram said that while this is "obviously a big change, it is something we felt we needed to do if we want to stay a vibrant part of the book business." Ingram said that while he will remain co-president of Ingram Industries, he will devote most of his time to running the book group, and will remain based in Nashville. Ingram will continue to be run by the same management team and it will offer the same terms to other accounts as it will give to B&N.
Although Ingram will continue to supply books to its current customers, it is unlikely that many of those accounts will want to do business with the wholesaler. In a prepared statement, the ABA called the pending purchase "a devastating development that threatens the viability of competition in the book industry." The board of directors of the ABA call on the antitrust division of the Department of Justice and the Federal Trade Commission "to investigate the proposed acquisition and to take prompt and decisive action to stop this blatantly anti-competitive combination."
Stunned publishers felt unable to comment on the deal until they had a chance to ponder its implications. Their immediate reactionswere best summed up by Penguin Putnam's Phyllis Grann, who said, "It's going to take all of us a bit of time to digest the news." At HarperCollins, Jane Friedman said: "Change seems to be the only constant in the business today. HarperCollins has had a longstanding and successful relationship with both parties, and we feel it must continue; the only way is to work with this new arrangement in pursuit of our mutual goals of getting books to the consumers." And at the Authors' Guild, Paul Aiken told PW Daily that "this could publisher consolidation."
Wholesalers Ambivalent About Deal
Although at first blush it might seem wholesalers would welcome the B&N-Ingram deal -- assuming independents would flock to Ingram's competitors in protest -- wholesalers with whom PW spoke expressed concern and ambivalence about the turn of events. The reason: as several wholesalers pointed out, B&N, in contrast to Borders, has been a significant customer of regional and specialized wholesalers. For example, B&N has been the single-largest customer at K n Book Distributors for the past few years, according to president Bob K n. "We might lose all that business," he said, "but if independents feel it's a conflict, we may get more business from them. Right now we just don't know.But it d s upset the apple cart."
Another wholesaler noted that Ingram may put more of an emphasis on "fulfilling the needs of B&N more than general wholesaling needs. And independents may wonder if they should support the competition."
Mike Raymond of the distributors, South Bend, Ind., raised the discount issue, wondering if Ingram would continue to qualify for more advantageous wholesaler discounts if much of its business became fulfillment of the parent company's orders. Some regional and local bookstore chains have tried in the past to qualify for wholesaler discounts, but generally were not granted them by publishers except on orders shown to go to other retailers.
Frank Daly of Baker &Taylor, president of the American WholesaleBooksellers Association, took a cautious approach, saying, "It's too early to tell what the implications will be. We have to see first if it passes FTC review."
For Booksellers, Fear and Shock
Booksellers around the country are shocked at the news that Barnes &Noble has bought Ingram. Some are saying that they will halt all dealings with Ingram.
"I couldn't imagine that we'd continue to do business with them, knowing that B&N is making a profit on all our orders," said Tom Campbell, co-owner of The Regulator Bookshop in Durham, N.C. "Why would any independent in their right mind contributeto this situation?"
At That Bookstore in Blytheville, Ark., the decision was made immediately to cease ordering through Ingram.
Other booksellers, while expressing resentment, say they can't see purging all Ingram orders in favor of other wholesalers. "Baker &Taylor seems to me to be in such a weak position these days," said Karl Killian, owner of Brazos Bookstore in Houston, Tex. "We try to do as much business with the publishers as possible but I hate to think that if a customer says we need a book Monday that we couldn't dothat." And Dale Glenn, co-owner of Chapter 11 in Atlanta, Ga., told PW Daily, "We don't know if there will be a change in our buying."
Amazon.com chief Jeff Bezos reassured customers while taking aim, literally, at B&N. "To our customers: Worry not," he said. "Those who make choices that are genuinely good for customers, authors and publishers will prevail. Goliath is always in range of a good slingshot."
The company also released statement that said: "Amazon.com currently purchases books from a variety of sources, including Ingram. Our long-term strategy has been to diversify our supplier base and to increase our direct purchasing from publishers. We anticipate that this trend will continue for some time to come."
The ABA has urged members to refrain from a boycott. In a letter to booksellers, president Richard Howorth wrote: "While we are clearly outraged at this proposed acquisition, I do want to urge you to temper your response. We are not suggesting, nor should you suggest, that any store not do business with any particular company. As far as we're concerned, it's business as usual unless and until something happens to make that no longer possible."
Still, the ABA did say that the deal would make indies "virtually dependent upon their largest competitor, one which the ABA alleges in pending antitrust litigation has a longstanding, systematic strategy of driving independents out of business." The association noted that while there are some independent wholesalers that provide excellent service, Ingram is a primary distribution source for the vast majority of ABA stores. "We will use all of our strength and available resources to fight" the merger, the ABA concluded.
Jerald Jacobs of Jenner &Block, the ABA's legal counsel, told PW Daily that the purchase is "shocking and incredible and fraught with what we think are potential anti-competitiveproblems." Or, as Miriam Sontz, general manager of Powell's in Portland, Ore., put it: "This is a body-blow to independentbookselling."
At press time, calls to Amazon.com and Borders werenot returned.
-- with reporting by Kevin Howell, John Mutter, Steven M. Zeitchik, Jim Milliot, and John F. Baker
B&N-Ingram: And Now for Something Completely Analytical
As the industry still reels from Friday's news about B&N's purchase of Ingram, we've taken to watching the events--and their interpretations--unfold.
The financial press, of course, has focused on the Barnes &Noble purchase of Ingram deal as a competitive move against Amazon.com. This move would give B&N the most extensive book distribution system in the country, enabling online book buyers to get booksas fast as possible. (Imagine the advertising tagline: "Every booktomorrow.") B&N also takes control of Amazon.com's largest wholesaler-supplier. (In 1997, Ingram supplied 58% of Amazon.com's books, although that percentage likely has dropped significantly following Amazon.com's opening of a warehouse in Delaware and generally diversifying its sources of supply.)
The Wall Street Journal speculated today that the FTC and Justice Department would approve the purchase because it is a "vertical" purchase, i.e., not the purchase of a company in the same part of the business. The ABA is campaigning for governmentdisapproval and reported that a Justice Department spokesperson said that the purchase is "definitely something that would come under review." But the Bertelsmann purchase of Random House was approved earlier this year with no problem, and the government has shown more concern with purchases that result in a combination that dominates one segment of an industry.
Blurred somewhat by the focus on online bookselling, however, is what the purchase means for both the country's largest book retailer and largest book wholesaler.
At B&N, this purchase is the latest sign of how seriously the company views the potential of online bookselling and shows that B&N is once again reinventing itself.
But reinvention this time is occurring with much more speed and less control than in the early 1990s, when B&N gradually went from being the biggest mall bookseller to the largest book superstore operator. (That superstore strategy, incidentally, seems to have lost steam. One measure: the pace of B&N superstore openings has declined dramatically from 90-95 a year to only 11 in the first half of the current fiscal year.) At that time, B&N set the pace and stayed in the lead as a new retail concept swept through the book world. This time, it was blindsided by Amazon.com and appears to be desperately playing catchup. (For its part, Borders, B&N's primary brick-and-mortar competition, has expanded in other ways: it has opened superstores on four continents in the last year.)
Still, in part to make up for its strategic error in not recognizing the potential of online bookselling, with the purchase of Ingram, B&N gains solid footing in online bookselling as well as entree into several book businesses that could be the Next Big Thing, particularly on-demand printing (via Lightning Press).
In addition, the company has put more emphasis on its own publishing program, naming Barbara Morgan, former head of the Reader's Digest books operation, president and publisher of a new book publishing line. These 7 to 14 original titles a year will further expand the longtime B&N reprint publishing program.
In sum, B&N will soon become a unique hybrid that will dominate vast portions of an increasingly consolidated industry. When the deal g s through, it will control the largest number of superstores in the world, a huge mall bookstore division, the second-largest English-language online bookselling operation, the country's largest wholesaling business, the largest on-demand printing program and significant publishing operations.
At Ingram, the sale is perhaps the largest of the many changes that have occurred in various parts of Ingram Industries following the 1995 death of Bronson Ingram, the longtime head of the company. Stories have circulated that the margins and growth of Ingram's book operations paled in comparison to Ingram's other companies, particularly the computer wholesaling and video wholesaling operations. Moreover, company executives had become concerned in recent years about the potential of the role of the middleman when large customers like Barnes &Noble and Amazon.com have either begun or announced plans to expand distribution centers while the market share of the company's mainstay customers, independents, continues to drop.
In an odd coincidence--which seems to be just that--David Ingram, John's brother, resigned last Friday from the board of Ingram Micro, the computer wholesaling company that was spun off in 1996, saying, "Recently, certain strategic investments have presented themselves which could potentially subject me to conflicts of interest." For his part, John Ingram stays on the board of Ingram Micro.
Autonomy How Long?
Unlike other B&N acquisitions, Ingram will be part of the management of the new combined company: John Ingram will remain as head of Ingram Book Group, become co-chairman of B&N and take a seat on the board of B&N. B&N has indicated that Ingram will be run by the same management team.
B&N's acquisitions track record has been invariable: whether buying B. Dalton Bookseller, Bookstop/Bookstar, Scribner Bookshops or Doubleday Bookshops in the 1980s, the company began by indicating that management and operations would remain autonomous. Within a year or two, however, most operations at the acquired companies had been moved to New York headquarters. Of course, the earlier acquisitions were in book retailing, an area B&N already knew thoroughly.
Bertelsmann at Arm's Length
Although many independents like to link the country's largest bookseller and largest wholesaler with the largest publisher, Bertelsmann, which just last month bought 50% of barnesandnoble.com for $200 million, Bertelsmann has been emphatic that it has no connection with the purchase.
The seemingly bizarre rumor about Barnes &Noble buying Ingram Book Group--reminiscent of the "press release" sent out several years ago announcing the purchase of the Roman Catholic Church by Random House--that we heard first late last Wednesday began to look more and more real on Thursday. Two signs that it might be true: B&N, which had readily shot down recent rumors about opening stores in Singapore and the U.K., suddenly had a policy of not commenting on rumors. Oh, really? And Ingram asked"hypothetically" what the magazine's weekly news deadlines were.
But early Friday morning, B&N faxed its release announcing thedeal, which soon led to a battle of press releases between B&N andAmazon.com and the ABA, both through faxes and broadcast e-mail.
Concerning the issue of Ingram servicing Amazon.com, B&Nstarted off statesmanlike. In its initial Friday morning press releaseannouncing the purchase, it said that Ingram would "continue to supply books to current customers including independent bookstores, specialty retailers and libraries."
And later in the day, in a story run by Herb Greenberg, the columnist at TheStreet.com who on Wednesday first reported that the rumor was true, Steve Riggio, B&N's vice-chairman and brother of chairman Len Riggio, reiterated the point. Asked about Ingram supplying Amazon.com, he said, "It's our goal to continue to provide service to all Ingram customers, and obviously they're one of them."
But only a paragraph later, Riggio attacked as "a gross misrepresentation" an Amazon.com ad in that day's Wall Street Journal that said B&N offered just 275,000 books and CDs in its superstores.
Later in the day, Amazon.com founder Jeff Bezos referred to his company as an "independent bookseller" and said "Goliath is always in range of a good slingshot."
By late Friday, B&N responded with a release, stating in part: "Well, Mr. Bezos, what with a market capitalization of some $6 billion and more than four million customers, we suppose you know a Goliath when you see one. Your company is now worth more than Barnes &Noble, Borders and all of the independent booksellers combined. Might we suggest that slingshots and pot shots should not be part of your arsenal."
Late Friday evening, Amazon.com responded with a single word: "Oh."
Most ABA members probably had a few more words to say concerning B&N and Amazon.com's fight over which of the two of them was more independent and smaller.
In another series of battling press releases, the ABA greeted the B&N announcement with a release calling it "a devastating development that threatens the viability of competition in the book industry, and limits the diversity and availability of books to consumers." It also called on the Justice Department and FTC to investigate the buy and "take prompt and decisive action to stop this blatantly anti-competitive combination."
B&N responded with a release, which referred to "the IndependentBookstore Owners Association (ABA)" and berated the IBOA (or whatever it is) for "at best another attempt to disparage our good reputation, and, at worst, is itself a manipulation designed to cause booksellers who should be competing with one another, to act in concert against our company."
Interestingly, this release noted that "independent booksellers constitute a substantial portion of Ingram's business and are responsible for a major share of its profits."--John Mutter