If a rival jumps off a cliff, do you follow suit?
Weeks after Dish Network's (Nasdaq: DISH) Charles Ergen's light-headed decision to outbid everyone else for Blockbuster's remains, Liberty Media's (Nasdaq: LBTYA) John Malone is upping the ante on crazy with last night's $17 all-cash offer for Barnes & Noble (NYSE: BKS).
Your move, Ergen.
Can you turn up the stupid? There's probably a vinyl record superstore still left standing somewhere that you can buy. Surely there's a warehouse out there brimming with Beanie Babies, Pokemon cards, and Ashley Simpson CDs to dust off.
If all else fails, chewing on glass is always an option.
Dear John letter
What are you doing, Malone? You're a brilliant investor. You have assembled a mosaic of portfolio pieces at attractive price points.
No one may ever top your Sirius XM Radio (Nasdaq: SIRI) deal, where you collected the equivalent of 2.7 billion shares solely for the sake of loaning the then-struggling satellite radio provider some money at high interest rates. That stake is now worth $6 billion!
You won't catch that kind of lightning in a bottle with B&N. Instead of warming up to Howard Stern, I'm going to serve up a stern warning.
B&N is unlikely to ever be worth the $1 billion that the company is now valued at. Physical distribution of books is dying, and B&N is hemorrhaging money on its Nook e-reader.
Analysts see the chain losing money yet again this new fiscal year, and it's not as if the pros are low-balling here. B&N has missed Wall Street's bottom-line targets every single quarter over the past year.
There's no easy way out
The cavernous bookstores can't be saved, and surely Malone knows this. Malone's interest here has to rest largely on the Nook, but what's the point? Amazon.com (Nasdaq: AMZN) has cornered the market, and the recent price cut to as low as $114 for an ad-supported reader is only going to smash hardware margins even more.
The Nook and the tablet-esque Nook Color are impressive, but this seems like a lousy reason to buy all of B&N.
At least Ergen got in on Blockbuster at a reasonable price. He can liquidate the physical DVD stores to focus on digital delivery and get most of his investment back -- if he dismantles quickly. I'm not sure if even liquidators would know what to do with B&N in an asset sale. What's the next generation going to do with a Garfield bookmarker?
Earning the right to be stupid
Still, without knowing Malone's endgame it's hard to insist that he will regret this offer. He's struck a ton of lucrative media deals in his time. Me? Like every other alert cynic, I simply lean on the luxury of having seen B&N fade before my very eyes over the past few years.
There is no retailer of physical media that will be worth more in five years than it is now. Digital distribution is a wrecking ball to both bricks-and-mortar. We saw it happen to CDs. It is happening now to DVDs and books.
I'm going to miss bookstores. I remember when they were relevant. I still find myself strolling through the racks, if only to load up on the book titles that I will order through Amazon for less. Maybe it's just me, but half the time there isn't even someone at the register outside of the holiday shopping season. B&N has conceded the sale by choosing to go with an empty net. Its resources -- and cobwebbed profitability -- have gone to promote an e-reader that isn't a Kindle and a tablet that isn't an iPad.
Why anyone would want to pay to inherit the irreversible fade and take on the imploded margins is beyond me. Why that someone is Malone is a shocker.
You better know what you're doing, Malone -- because B&N sure doesn't.
Can Barnes & Noble be saved? Share your thoughts in the comment box below.
