Why?
I'm usually good for more than a monosyllabic response to financial news, but I was short on words upon hearing that a Borders Group (NYSE: BGP) activist shareholder -- billionaire hedge-fund manager William Ackerman -- wants the retreating bookseller to approach Amazon.com (Nasdaq: AMZN) as a potential buyer.
Why?
I get why a major investor in Borders would want more than Barnes & Noble (NYSE: BKS) and penny-pinching private- equity firms looking into a purchase of Borders. The bigger the bidding pool, the better the bids. I just don't see what Amazon would want in Borders.
For starters, there's the sales-tax dilemma. As it stands now, Amazon has to tack on state sales tax only on orders hailing from the four states where the company has its distribution centers. Some states, including New York, are angling to close that Web-commerce loophole, but purchasing Borders, which has a physical presence throughout the country, would immediately force shoppers to pay sales taxes.
There may be legal workarounds. On the other hand, the entire issue becomes irrelevant if legislators decide to take a sales-tax bite out of mail-order and Internet operators. But even if taxes weren't an issue, why would Amazon want Borders?
Amazon has done little to indicate an interest in bricks-and-mortar retailing. If anything, its most recent media retailing moves seem to indicate a shift away from physical goods altogether. Its Amazon Kindle is all about delivering books, magazines, and newspapers directly and electronically to consumers. The company has digital-delivery initiatives to replace CDs and DVDs, too. Borders has a working relationship with Sony (NYSE: SNE) to promote Kindle's rival, the Sony Reader, but Amazon is smarter than to make a senseless purchase for the sake of snuffing out its only realistic e-book threat.
What would Amazon do with Borders? The online model is all about scalability, and the offline model is about getting shoppers back into the store. If Amazon's aim is true in the online space, real-world booksellers, including Borders, Barnes & Noble, and Books-A-Million (Nasdaq: BAMM), will matter less with every passing year. If Amazon wants to hedge its bets, it's better off not listening to this particular hedge-fund manager.
This is not a shot at Ackerman. If my fund owned nearly a third of a dinosaur, I'd start singing the praises of fossil fuels, too. However, his best bet in growing the auction excitement is to approach overseas chains that may be attracted to cheap dollar-denominated purchases, or perhaps he should take to major discount department-store chains such as Wal-Mart (NYSE: WMT) or Target (NYSE: TGT), places that already sell a good deal of books and would benefit from the upmarket move of the Borders brand as a store-within-a-store concept.
That's a stretch, too, but it sure makes a lot more sense than seeing Amazon take a step back in the evolutionary chain.
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