Monday, December 22, 2008

Commenting on Borders

The author Tobias Buckell wrote about Borders this morning, following up a very gloomy post about Borders by the agent Jenny Rappaport. I respect both of them a lot, but I think Jenny is misunderstanding this particular situation, and so I wrote a long comment on Tobias's post. And then I decided to copy it over here as well:


I'm with Joshua [Bilmes; the previous commentor and Buckell's agent]; Borders isn't in great financial shape, but they are nowhere near bankruptcy. They're actually a great target for a takeover attempt right now, and I'm surprised nobody has tried yet. Their fundamentals are decent, though they've gotten hammered by the step drop in CD sales (and somewhat in DVD as well), and of course by the general rotten retail climate this year.

But their ridiculously low stock price has been driven to that level by pure Wall Street panic; they're exceptionally undervalued right now. Based on that price, they're valued at substantially less than their level of cash on hand (not even considering inventory, leases, etc.), which is just ludicrous.

Borders is a public company, so their filings (such as their quarterly 10-Qs) are available immediately online, so we can all look at their numbers ourselves rather than engaging in fear-mongering. (And, yes, they do have a net loss through November 1st, but retailers almost always have a net loss at that point -- and their loss is actually slightly less than last year.)

It is possible that they will go bankrupt, or be bought by someone else (though they've recently taken themselves off the market), or -- and I think this is the most likely -- be the target of a hostile takeover attempt. But it's actually pretty stable, given the rotten economy, and something that looks very much like the current Borders chain is likely to still be around in five years.

(I bet their management is wishing they had more cash -- this would be a great time to engage in an aggressive stock buyback.)

2 comments:

Anonymous said...

Nobody is trying to take over Borders now because nobody can get financing for anything now. It's happening in lots of other "vaguely media-related" businesses now. (CBS just sold three radio stations in Denver for eight cents on the dollar, having bought them in the media bubble eight years ago.) The only people who have significant amounts of money right now are the Mormons and the Chinese, and neither of them do retail. (The Mormons do do broadcast, at any rate, so everyone in that arena is waiting to see what they snap up after the big bankruptcies next year.) The various oil sheikhdoms need to hoard their dollars now as a result of the bottom falling out of the oil price. Once money starts flowing again, a lot of currently beaten-down businesses will suddenly look attractive, but in a lot of cases it may take forcible deleveraging (i.e., bankruptcy) to get them there.

Jenny Rae Rappaport said...

I don't mind that you think I'm misunderstanding the situation. I consider what I wrote just speculation, and I'm equally happy to hear your opinions too. =)

I think what's worse is people not talking about what *might* happen, whether good or bad.

Post a Comment