Last Updated May 25, 2010 12:03 PM EDT
It's long been thought there isn't room for both chains in the marketplace. So what's LeBow's game? He could just be rolling the dice that B&N will pay a premium for Borders' stock and he'll make hay (his deal gives him an option to claim millions of additional shares at a rock-bottom price). But just maybe, he could turn the tables and capture B&N, and its hot Nook e-book reader, to feed Borders' own Internet strategy.
Two years ago, many book-lovers were braced for Barnes & Noble to buy Borders and consolidate the book superstore niche. As the downturn hit, both chains floundered. For its part, B&N continues to see profits shrink, despite the early success of the nook reader. Both chains are saddled with big retail lease commitments as their industry continues to transition to electronic book delivery. Borders was considered to be teetering on the verge of bankruptcy before its new cash injection helped it renegotiate some of its other debt.
Sure, B&N is more than twice the size of Borders in terms of store-count -- more than 1,400 (including its college bookstores) compared with around 500 for Borders. Given the industry changes, that perversely puts Borders at an advantage, since it has fewer leases it might need to shed. At the very least, LeBow has given Borders a stronger hand to play for a possible merger... but its stronger financial position makes it a possibility it could come out on top.
If Borders bought B&N, it wouldn't be the first time in business that a dolphin swallowed a whale. If LeBow is willing to pump more money into the bookstore channel, he might put together an investor group to bid on B&N and add it to Borders. Though its own reader isn't out for another couple weeks yet, the Kobo is already being panned, so landing the nook would be a coup.
B&N's college bookstores are doing well, and Borders could shed most of the regular B&N chain, which is still seeing declining comparable-store sales. Somewhere between these two chains, LeBow is betting, there's one viable book superstore chain, and he plans to be there to cash in on the consolidation, on way or the other. We'll know more about how Borders's retail stores are faring later this week, when the company announces its first-quarter results.
Photo via Flickr user markhillary