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Should Borders Buy Barnes & Noble?

Stocks in this article: BKS BGP AMZN AAPL GOOG

Barnes & Noble reported its third consecutive quarterly loss last month as it invests heavily in its Nook e-reader. Borders is expected to report quarterly results on Thursday.

"A merger would allow for some serious shrinkage of stores, cost cutting and consolidation of overhead," James McTevia, head of the restructuring firm bearing his name. "It is necessary to avoid either going into Ch. 11."

If Borders does, in fact, buy Barnes & Noble. McTevia predicts Barnes & Noble will end up being the name still on top of the doors, since it is a higher-profile company and better regarded by both consumers and investors. He notes that Borders has already shuttered stores and sold off some assets, and has "changed management like you change underwear."

While the merger of Barnes & Noble and Borders might help one of the names survive, other experts believe it is simply putting bad on top of really bad and it's unlikely that even if the two joined forces they would be able to compete with technological advances.

"Both firms face their own internal and external challenges, and the risk is that combining entities now, under these circumstances, could present more of a distraction than anything else," Morningstar analyst Peter Wahlstrom, wrote in a note.

"Potential synergies related to the consolidation of back-office and distribution functions alone could be meaningful, though we don't think they offset the longer-term structural headwinds that the industry faces," he continued.

Investors may also be unwilling to settle for a deal of $16 a share, Wahlstrom noted, especially given they tolerated a 25 cent per share quarterly dividend while Barnes & Noble's stock declined more than 30%.

"It's a dreadful idea," says Simba Information analyst Michael Norris. "In the time that it takes for the merged company to design their business cards, Apple, Google and Amazon will be running ahead in e-reading and e-book retailing."

Given this, do you think a Borders and Barnes & Noble merger is the best bet for the book sellers?

Should Borders buy Barnes & Noble?


-- Written by Jeanine Poggi in New York.

>To contact the writer of this article, click here: Jeanine Poggi.

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