Dan Primack

The latest on private equity, M&A, deals and movements — from Wall Street to Silicon Valley

Let's put this bookseller merger in perspective

December 6, 2010: 3:25 PM ET

That Barnes & Noble is in play is no big shock. What's strange, however, is how much so many of us seem to care.

Today's big M&A news comes from the world of brick-and-mortar bookstores, as Borders (BGP) has offered to merge with larger rival Barnes & Noble (BKS).

More specifically, Borders shareholder Pershing Square Capital Management -- a hedge fund managed by William Ackman -- would finance a $16 per share acquisition (20% premium to Friday's closing price). Shares of both companies jumped on the news, with Borders up 32% and Barnes & Noble up more than 12% as of the time of this writing.

That Barnes & Noble is in play is no big shock. The company announced plans to evaluate strategic options back in August, and a number of private equity firms are said to have kicked the tires.

What's strange, however, is how much so many of us seem to care. Not just media folks like me, but also media consumers like you (unless this post is your browser homepage). After all, it really doesn't matter much in the grand scheme of book-buying or book-selling.

Ackman's offer would value Barnes & Noble at approximately $960 million. If you add in the current Borders market cap, we're just over $1.6 billion. And, to be extraordinarily generous, let's round that up to an even $2 billion due to post-close synergies and the possibility of shareholders pushing for a premium on the premium. Moreover, we'll forget that most Barnes & Noble locations are leased (over 400 are up by April 2014), which means that any commercial real estate revival could sink the company's profit margins.

So how would the merged bookseller match up against its main rival, Amazon.com (AMZN). As of market open today, Amazon was valued at more than $79 billion. Or, put another way, around 40x the size of Borders and Barnes & Noble combined (based on my estimate) -- or around 50x the current combined book value.

Under normal circumstances, a company's stock would fall on news of two other rivals merging. But Amazon actually has ticked up more than a point today. Guess that's because Amazon shareholders no longer consider Borders and Barnes & Noble to be serious competition... whether alone or together.

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About This Author
Dan Primack
Dan Primack
Senior Editor, Fortune

Dan Primack joined Fortune.com in September 2010 to cover deals and dealmakers, from Wall Street to Sand Hill Road. Previously, Dan was an editor-at-large with Thomson Reuters, where he launched both peHUB.com and the peHUB Wire email service. In a past journalistic life, Dan ran a community paper in Roxbury, Massachusetts. He currently lives just outside of Boston.

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