Running for the Borders

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How do you feel about book superstore bookends?

Barnes & Noble (NYSE: BKS) is exploring the purchase of rival Borders Group (NYSE: BGP), according to this morning's Wall Street Journal. Shares of Borders opened 12% higher on the speculative buzz.

This is the kind of news that would have made your head spin 10 years ago, but it seems like too little, too late, by today's standards.

Companies like Amazon.com (Nasdaq: AMZN) and Sony (NYSE: SNE) are championing digital books, removing bricks-and-mortar chains from the literary consumption equation. You also have an industry running stagnant since Scholastic (Nasdaq: SCHL) put out the final Harry Potter book last summer.

Antitrust concerns would have laughed off a pairing of the two bookworm magnets in the past. These days, it may not even be enough.

Barnes & Noble and Borders would combine for roughly a third of the meandering book market. Are regulators really going to get in the way? Aren't we just a year or two from having Books-A-Million (Nasdaq: BAMM) rename itself Books-A-Thousand?

I found myself on the bullish end of a Dueling Fools segment on Borders last summer. Big mistake. The stock has gone on to shed two-thirds of its value.

When Borders put itself on the block earlier this year, it wasn't an exit strategy. It was an entry wound. Barnes & Noble has held up better, but only because it has executed better in cyberspace, even to the brazen point of taking on Wikipedia. It certainly didn't hurt that the company had thriving video game retailer GameStop (NYSE: GME) to spin off.

Borders would look good on Barnes & Noble's arm, if only because it's hard to picture it anywhere else. Even private equity firm buzzards are likely to stay away, as losses begin to mount at the once-profitable Borders. Barnes & Noble has the ability to cash in on synergies that will help stop the bleeding in the near term. The real concern is the long run, because even the mighty Barnes & Noble will be pressed to change its model in the coming years to remain competitive.