borders/amazon deal

[Ann Okerson <ann.okerson@yale.edu>]

Excerpts from today's NY Times, of possible interest to readers.

___

April 11, 2001 

Borders Turns Over Its Online Book Sales to Amazon

By SAUL HANSELL and DAVID D. KIRKPATRICK

The Borders Group, the nation's second-largest bookseller, is closing its
struggling online store and will have Amazon.com serve its customers
instead, executives of the two companies announced today.

Amazon will become the seller of record, providing the inventory,
fulfillment of orders, Web site content and customer service, the
companies said in a news release today. The new Web site will incorporate
information about locations of Borders stores and calendars of their
in-store events.

"Amazon.com has worked hard to provide its customers with the best
possible shopping experience, and we are incredibly proud to power and
manage the new Borders.com," said Jeff Bezos, the chief executive and
founder of Amazon.  "Borders is best-of-breed in the physical world and a
company that shares our passion for serving book, music and movie lovers
everywhere."

Borders Group president and chief executive officer, Greg Josefowicz, said
in the same statement, "This alliance allows Borders to offer our
customers the convenience of an online shopping option with the added
benefits that will emerge through our new association with Amazon.com, the
world' recognized e-commerce leader."

Borders is a distant third in the online book market, with $27 million in
sales last year. Amazon sold $1.7 billion of books, music and videos last
year, and Barnesandnoble.com, the online affiliate of Barnes & Noble, the
No.1 bookstore chain, sold $320 million.

Because Borders's online sales are so small, such a deal would have more
symbolic than financial benefit for Amazon. It will obtain some new
customers and the possibility of promotion at Borders and Waldenbooks
stores.

Borders, however, may be able to trade a steady stream of losses for
commission payments from Amazon on customers it refers.

As overall sales of books online slow, Borders has apparently concluded
that it no longer needs to own an Internet store, despite the expense, in
order to protect its core business.

In February, Borders, which is based in Ann Arbor, Mich., announced that
it planned to take a one-time charge of more than $20 million, in part
because of the depreciating value of the assets of its Web site. It
acknowledged that its Web business "will not be profitable in the
foreseeable future."

"Borders could get a guaranteed revenue stream," said Lauren Levitan, an
analyst with Robertson Stephens. "I'm not sure what Amazon gets since they
already have dominance of the category online."

Borders and Amazon will not exchange equity, the executives said.

Shares of Borders, which were as high as $40 in 1998, have suffered as
investors react to the online stores' incursion into Borders franchise.
They fell 18 cents this morning to around $16.80. Amazon's shares, which
peaked at $106 in December 1999, reacted rather strongly, gaining around
$1.01, more than 8 percent, to $13.02.

[SNIP]

The deal with Borders, however, might help restore Amazon's credibility
with investors, who have become increasingly concerned about whether the
company can stem its losses before it runs out of cash. On Monday, Amazon
said that its sales and profit margins in the first quarter were better
than expected.

Amazon has said it is interested in pursuing joint ventures with other
retailers and has been rumored to be in talks with companies like Wal-Mart
and Best Buy.

[SNIP]

Last year, a falling share price led Borders to explore options including
a possible sale of the company. It was in talks to be acquired by a group
of financial concerns last summer, but the deal fell through because a
weak bond market interfered with the buyers' financing plans. A restless
shareholder group has since pressed the company to renew its search for a
buyer and pestered executives over the terms of their employment
contracts, citing Borders' poor performance compared with that of Barnes &
Noble.

copyright 2001, New York Times