Wednesday, January 05, 2011

Could a Borders bankruptcy bring Indigo Books to the U.S.?

Borders' financial struggles are well-known; I wrote about the company's decision to delay payments to some of its publisher vendors, and its notice that if it can't raise additional capital, it will be in default on its existing financing by the end of Q1 2011. The most obvious scenario is that if Borders is unable to raise more capital, it will go bankrupt and its stores will close. However, there's an alternative scenario that's intriguing (it's also entirely speculative at this point).

Rather than develop its own eBook reader as Amazon and Barnes & Noble did, Borders decided to partner with a Canadian company, Indigo Books, for its Kobo reader. Indigo has 70% of the retail market for books in Canada under the Chapters and Indigo brands. If Borders goes bankrupt, it could become an appealing acquisition for Indigo. Under U.S. law, all of Borders' leases would be cancelled, and Indigo could pick and choose the stores that it wants to keep open. Borders' debt, pension and benefits obligations would also be wiped out. Indigo could bring its successful merchandising approach to the U.S. Together with its operations in Canada, it would have the purchasing power to compete with Barnes & Noble, albeit on a smaller, more economical scale.

Indigo could also dump the non-Kobo eReaders (Sony, Aluratek, Velocity, etc.) sold at Borders and focus exclusively on its own devices. This would decrease consumer confusion and increase Kobo's market share.

Rather than Borders buying Barnes & Noble (unlikely), Barnes & Noble buying Borders (unwise) or Borders going out of business (unfortunate), an acquisition of Borders out of bankruptcy by Indigo could make a lot of sense for Indigo, publishers and consumers.
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