Borders Fallout; B&N May Take a Look
Investors reacted negatively to yesterday's news about Borders--including its possible sale, financial deals with its largest shareholder and suspension of the dividend. On a day the Dow rose 2.2%, Borders stock fell 28.6%, closing at $5.07, an all-time low. (Last May the stock hit a 52-week high of $24.15.) At one point yesterday, the stock was down 44% at $3.97 a share. Trading volume was extraordinary. Average volume in the past three months was 1.6 million shares a day; yesterday it was 26.8 million shares, representing nearly 46% of the company's 58.7 million shares outstanding. The company's market capitalization (outstanding shares multiplied by the share price) is down to $297.9 million.
Barnes & Noble indicated a willingness to consider an offer for its major rival. (Could there be a Barnes & Borders in the future?) In a report quoted by several media outlets, Matthew Fassler of Goldman Sachs noted that Borders's financial problems would lessen any antitrust considerations.
On the other hand, Credit Suisse analyst Gary Balter wrote that he sees "little opportunity in the near term for Borders to be sold," even to B&N, which likely would not make a move unless Borders filed for bankruptcy.
Interestingly Pershing Square Capital Management, Borders's largest shareholder with a 26% interest, is B&N's second-largest shareholder, with a 10.9% stake. According to the Wall Street Journal, hedge fund Pershing, "which could facilitate a merger, is expected to back a combination." B&N chairman Len Riggio is B&N's largest shareholder, owning 27.6% of company stock.
Barnes & Noble had relatively positive news yesterday. The company boosted its quarterly dividend to 25 cents a share from 15 cents a share, a 67% gain.
As announced earlier, B&N consolidated sales for the year ended February 2 were $5.4 billion and for the fourth quarter were $1.8 billion. Net income in the quarter was $115 million, down 9% from $126.7 million in the same quarter last year. Net income for the year was $135.8 million, down 9.8% from $150.5 million in the previous year.
B&N recently lowered forecasts for the current year, which it said will be challenging.
In contrast to Borders stock performance yesterday, B&N rose 8.1% to close at $30.27 a share on nearly triple the average trading volume. The company's market capitalization is $1.9 billion.