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Barnes & Noble Abandons Attempt to Buy Ingram
by
Posted On June 28, 1999
In early November 1998, Barnes & Noble Inc. (http://www.barnesandnoble.com) announced the forthcoming purchase of Ingram Book Group (http://www.ingrambook.com). Early this month, under heavy fire from independent booksellers and negative signals from the Federal Trade Commission, Barnes & Noble withdrew its bid. Booksellers rejoiced over the victory—Amazon.com more quietly than others. Barnes and Noble announced plans to build new distribution channels, presumably with the $600 million in cash and stock left over from the failed sale. Ingram grumbled that the FTC didn't understand it. Gurus wondered whether Ingram might seek and find another buyer. (For background information on the original offer, see the November 30, 1998 NewsBreak "Barnes & Noble Buys Ingram and Sets off a Powder Keg.")

Barnes & Noble and Ingram announced their decision to withdraw their merger filing with the Federal Trade Commission after a report surfaced that the Competition Bureau of the Federal Trade Commission had recommended that the Commission reject the merger. Ordinarily the Commission follows the recommendation of its staff. The merger had already received an unusual "second request review," following a massive campaign of opposition from independent booksellers. Robert Pitofsky, the chairman of the FTC, stated that although the agency had opposed the deal for compelling policy reasons, a legal challenge might have been difficult to uphold. Antitrust law on vertical mergers (between companies and their suppliers or distributors) does not favor the government as much as in the case of horizontal mergers (between all the manufacturers of a product, for example). In fact, Pitofsky said in an interview with The New York Times, "The government and this agency haven't won a vertical merger case in 20 or 25 years."

In his announcement of the merger cancellation, Ingram Book Group's chairman, John R. Ingram, stated that "the review process has been disappointing to us. The FTC staff's view of the market appears to be shaped by the loudest voices instead of the rapidly changing realities of how and where people buy books. For 6 months we've responded to every question—be it based on fact or those motivated by politically charged accusations. The events of the last several days have made it clear that some staff hold an outdated view of the marketplace, making an objective analysis of the transaction impossible." Barnes & Noble merely stated that "although both companies believe the transaction would ultimately be approved in the courts, protracted litigation would not be in the best interests of Barnes & Noble or Ingram."

Discussing future plans, Ingram added: "Ingram remains a strong company today with solid customer relationships and a loyal base of associates. For now, we plan to continue operating independently. We will continue to evaluate any opportunities that will help us better adapt to marketplace changes and strengthen services to our customers."

Barnes & Noble has announced its intention of opening new distribution centers, one in Memphis, Tennessee, and another in Reno, Nevada. It expects to have the new warehouses, each totaling approximately 350,000 square feet, open by early next summer. The company has also begun expansion of its existing 1-million-square-foot-capacity warehouse in New Jersey to add another 750,000 square feet. Another competitor, Baker and Taylor, has also announced intentions of doubling warehouse capacity. Amazon.com already has begun building warehouses in Reno in response to the threat posed by the initial announced merger.

Ingram Book Group, a unit of privately held Ingram Industries, is the leading book wholesaler, serving as a major supplier to Barnes & Noble's competitors, including Borders Group and Amazon.com. It has annual sales of over $1 billion and ships 115 million titles a year.

Independent booksellers, represented by the American Booksellers Association (ABA) (http://www.bookweb.org), feared that the transfer of their major wholesale supplier to the hands of the leading chain bookstore competitor would threaten their survival. The ABA mounted a major campaign to stop the effort, collecting over 125,000 customer signatures in a petition drive, calling Congress, and sending letters to the FTC. At one point, the FTC altered its voicemail announcement to route calls concerning the merger. Although the ABA had discouraged its members from boycotting Ingram during this controversy, orders to the wholesaler from independent booksellers had apparently fallen off. Ingram stated that it expected to regain much of the business in an interview with Publishers Weekly: "If we're so important to the independent bookselling community, I would hope they would increase their business with us."

One development may open up more opportunities for book sales. The ABA has announced that it will launch its own online bookstore, called Book Sense, sometime this year.


Barbara Quint is senior editor of Online Searcher, co-editor of The Information Advisor’s Guide to Internet Research, and a columnist for Information Today.

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