Could B&N Buy Waterstones?

Late last week Barnes & Noble dropped a few hints that they might be partnering with Waterstones to bring the Nook ereader into the UK.That’s good news for UK ebook buyers, and great news for B&N, but there could be more to the story. Today I’ve heard the most interesting supposition. My source tells me that the B&N-Waterstones deal is almost a guarantee, but he goes one step further.

He thinks B&N could end up buying Waterstones. I think it’s a crazy idea, but there is some merit to it.

Barnes & Noble is not opposed to buying their way into a business. Remember, they bought Fictionwise and eReader way back when, and then used those companies as a platform to launch the Nook. B&N also owns Tikatok, a service that encourages children to write their own stories. You might recall that some time back tikatok released an app exclusively for the NookColor.

So this idea isn’t entirely out of the question. And it would give B&N a solid established presence in the UK book market. They wouldn’t just be an outsider, like Amazon; B&N would have established a desire to be a partner to UK publishers and authors.

But I don’t see it happening. Frankly, B&N doesn’t have the funds to buy Waterstones – not if they want to use those founds to  expand their digital business. And I would think that B&N already knows that digital is the future, not opening more storefronts internationally. (Actually, Borders went that route and virtually all the stores Borders opened in the US, UK, and Australia have since gone bankrupt and closed.)

Now, B&N could go for a stock swap, but I doubt that would appeal to Waterstones’ Russian investors. They’ve sunk £53 million into Waterstones, and we don’t know if they want to trade that for a bigger but riskier chunk of B&N – a company that hasn’t turned a profit in a couple years now.

But it’s an interesting idea, isn’t it. Do you think it could happen?

10 thoughts on “Could B&N Buy Waterstones?

  1. “Frankly, B&N doesn’t have the funds to buy Waterstones – not if they want to use those founds to expand their digital business.”

    That’s sort of contrary to your headline, right?

    It’s also the reason B&N will NOT buy Waterstone’s. The last thing they need is another bricks and mortar albatross. Doing some kind of digital Nook partnership deal — sure. But it’s kind of hard to buy another bricks and mortar enterprise when it is already losing money running 1300+ stores in the US.

    1. Alex-

      According to Barnes and Nobles SEC filings, the stores (both college and retail) are still making a good amount of money.

      The losses are coming entirely from BN.com.

  2. Barnes and Noble doesn’t have the cash on hand to buy Waterstone’s- but Liberty Capital does. And any acquisition deal by Barnes and Noble would require approval from Liberty Capital anyways. So I don’t think financing for this would be a deal-breaker.

    And traditional brick-and-mortar stores are going to be an important part of Barnes and Noble’s strategy going forward- the big question is what (books, nooks, cafe items, or something else entirely) they’ll be selling, not where. So they could use the real estate.

    That being said- I think if this did happen, it would be separate from the nook deal and would probably occur at a later date. Barnes and Noble is seeking to expand the nook internationally in several countries- not just the U.K.- France and Germany have been mentioned as well.

    So unless they are going on a bookstore buying spree all around the world this Christmas – I think this will mean retail partnerships- for now.

  3. I really doubt B&N would buy Waterstone’s. B&N has too many challenges here to stay afloat without adding having to learn the ways of book retailing in another country. And Waterstone’s has its own messes to sort out. Being bought by B&N would only add to their problems.

  4. Liberty Capital has lots of money however it has stated it’s interest in B&N is strictly on the digital side.

    We can agree to disagree on the view that B&N is “making a good amount of money” on its retail and college divisions based on SEC filings. The very fact that B&N was up for sale for almost a year and attracted zero buyers tells you something of the health of the enterprise.

    1. Alex-

      I don’t mean to be argumentative- but I’m not sure this is an “agree to disagree” situation. It’s a fact.

      Per the companies 10-K filing, in the most recent fiscal year (the twelve months ending April 30, 2011:

      BN retail earned a profit of $90,984,000
      BN college earned a profit of $76,293,000
      BN.com generated a loss of $232,536,000

      This includes all selling, general, and administrative expenses, as well a depreciation and amortization.

      In the first two quarters of this fiscal year

      BN retail earnings INCREASED $42,248,000 over the prior year’s quarters
      BN college earnings decreased $3,595,000 compared to the prior year’s quarters
      and
      BN.com earnings decreased $28,313,000 compared to the prior year

      Draw whatever conclusions you would like to from this information- and feel free to speculate about the future of the company in any direction you want- but it is what it is.

      For Barnes and Noble- in 2010/2011, traditional retailing was a profitable business, ebooks and online book sales were an expenditure. And the trend in 2011 has so far only made this more pronounced.

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