Bookstore Management Terms Bid From Rival "Inadequate"
Leah Eichler -- 12/4/00

Just when Canada's publishing industry thought the bookstore market could not become more concentrated, Indigo, the country's second largest book retailer, made an unsolicited bid to purchase Chapters, the country's largest bookstore chain, from its shareholders through a third company, Trilogy.

Trilogy Retail Enterprises L.P., whose principal partners are buyout-specialist Gerald Schwartz and his wife, Heather Reisman, founder and CEO of Indigo, announced that it would make an offer to Chapters Inc.'s shareholders to purchase their shares with the idea of merging Canada's two largest bookstore chains and their online units. Trilogy will make an offer to purchase 4.9 million common shares at a cash price of C$13 for a total of C$62.4 million ($40.5 million). If successful, the deal would give Trilogy approximately 50.1% of Chapters' shares.

"We believe that the offer represents an extremely attractive opportunity for Chapters shareholders to receive more than a 50% premium for a substantial portion of their shares and to participate in the benefits of the proposed mergers," Schwartz said in a statement. "Given the shareholding in Indigo of Trilogy's principals, Trilogy is the only party able to facilitate the mergers, which are expected to result in significant cost savings and efficiencies and to enhance shareholder value. The mergers will also create an opportunity to improve the financial condition of Canadian publishers, which has been the subject of recent public comment," Schwartz added.

Chapters' board of directors rejected the bid, calling it "totally inadequate and unacceptable" and "sadly insufficient." The board noted that the C$13 offer was well below Chapters' 52-week high of C$23.50. The company also reminded shareholders that Indigo has yet to disclose its financial performance and that Chapters believes its own financial position to be superior to Indigo's.

Chapters currently owns 77 superstores while Indigo has 15. In addition to its superstores and online division, Chapters owns 240 traditional bookstores under the Coles, SmithBooks and the Book Company banners.

The merger will be subject to a review by the Competition Bureau, which may take months to complete. In addition to the Competition Bureau, the Association of Canadian Publishers is keeping a close eye on the proposed merger, saying that its members are concerned about concentration in the retail market. Canada's Booksellers Association also said it was watching the deal closely. Sheryl McKean, CBA's executive director, said she had requested a meeting with the Competition Bureau to ensure that all stakeholders in Canada's bookselling industry will be considered in light of the merger. "If the Bureau intends to approve this merger, we trust that they will set out conditions that will ensure a level playing field to all players in the bookselling industry," McKean said.

Not everyone is worried by the potential concentration. Nicholas Hoare, owner of Nicholas Hoare Bookstores in Toronto and Montreal, felt that this merger was a positive move. "We're very keen on it; it's a masterstroke in terms of a business decision. It's an intelligent move and it is probably an overdue move. From our point of view as Canadians, it keeps the Americans out, which is salutary. This is a wonderful development in the sense of better the devil you know than the devil you don't," Hoare said. "I saw this ship [Chapters] as floundering and I had visions of people knocking on the government's doors to bail out a collective problem to do with publishers that would sink along with the rest of the ship. This represents, if it g s through, a really good promissory note for the future for both the publishing industry and the bookstores."