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Better news from Borders

3 September 2007

The big falls and continued turbulence in the stock market may well affect the book world in the future, as private equity's borrowing capacity looks like it will suddenly dry up. Many in the book world would be delighted at this outcome, as the many takeovers in bookselling and publishing have tended to create ever bigger companies and there is ongoing suspicion about the private equity approach to book businesses and its focus on short-term returns.

The turbulence hasn't stopped the last few acquisitions going through. To the surprise of many observers, the UK Competition Commission has provisionally cleared the merger between wholesalers Bertrams and THE. It said that competition from big rival Gardners and direct supply from publishers would act as a sufficient counterweight to the newly merged company.

The UK Office of Fair Trading has also cleared Pearson Education's £471m ($950m) acquisition of Harcourt Education in the UK from Reed Elsevier.

It may be that other planned private equity-driven acquisitions have been stopped in their tracks by the drying-up of international credit, but on the bookselling front there seems to be better news. Recent results from Borders US, helped by good superstore sales, show that sales in the second quarter were $169.8m (£84.16m), up by 31.2%. The business made an operating loss of $4.3m (£2.13m), compared to $13m (£6.44m) a year ago.

The sale of the UK Borders stores looks like it might be a management buyout, rather than a takeover by W H Smiths. Luke Johnson, the maverick businessman who is chair of Channel 4, may be backing this MBO, which is headed by much-respected Borders UK CEO David Roche. Many observers would like to see the Borders chain continue, as it does offer something different and provides a counterweight to the domination of the UK bookselling sector by Waterstone's.

In spite of the enormous loss posted by Borders international division last year and the decision, because of pressure at the US end of the parent chain, to sell it, Borders UK is widely thought to have had some successes and to offer a different approach to the market. Old Street's Sales and Marketing Director Ben Illis says: 'What we want is a high street of the right size and shape, run by people who appreciate and understand it. It's important to remember that there is a culture of shopping in book chains in the UK - not everyone wants to shop at supermarkets or even at Amazon - and we want a vigorous high street chain business which as publishers, we will support.'

This seems to be an outcome which everyone who is interested in a healthy bookselling sector can support. Across the world book superstores perform an essential function in catering for readers who want a wide range of books to choose from.