Borders Feels Whole Foods' Pain

Goldman believes the chances of a big book merger are smaller now, given the grocer's regulatory trouble.
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Shares of

Borders Group

(BGR) - Get Report

have been hit by, of all things, problems in the grocery space.

Borders' shares slid 6% Wednesday after Goldman Sachs downgraded the bookseller's stock, citing concerns of a tougher antitrust climate amid news of

regulatory challenges to

Whole Foods'


acquisition of

Wild Oats Markets



Shares of Borders were down $1.38, or 6.3%, to $20.40 in recent trading.

Goldman analyst Matthew Fassler downgraded Borders to sell from neutral, writing that the Federal Trade Commission's challenge to the Whole Foods deal "could have broader implications in a retail tape obsessed with prospective merger opportunities."

Fassler said Borders' stock price partly reflects the belief that the retailer may merge with larger rival

Barnes & Noble

(BKS) - Get Report

. Such a transaction would be open to the same regulatory complaints facing the Whole Food Markets deal.

Fassler points out that Borders and Barnes & Noble are each other's closest competitors, and like Whole Foods and Wild Oats in the organic-foods market, the specialty booksellers are the only two major players in their space.

In addition, Fassler wrote, the channel is already heavily regulated given a legal settlement related to smaller booksellers that limits buying power.

"Related to this, the politics of consolidation for a channel that distributes much of the nation's intellectual content were likely to be controversial in any event," he said.

Looking at the broader implication of the FTC's Whole Foods complaint, Fassler said he believed books and electronics will feel the greatest impact of the government action.