31 August 2007

Comparing Apples and Armadillos

In a rather obvious attempt to start a news cycle, the Detroit News has put out an article claiming that Borders and Barnes & Noble might now be able to merge.

Last week, a federal court ruled that a combination of the nation's largest organic grocers didn't violate antitrust rules. U.S. regulators had argued that the merger could reduce competition and inflate prices for organic grocery shoppers. The combination of Whole Foods Market Inc. and Wild Oats Markets closely mirrors a potential deal between Borders and Barnes & Noble and "could be perceived as a potential new precedent and open up meaningful discussions," David Schick, an analyst at Stifel Nicolaus & Co. in New York, wrote in a report to investors earlier this week.

Nathan Hurst, "Booksellers' merger now more possible" (31 Aug 2007) (fake paragraphing removed for clarity). I'm afraid this article, though, shows a great deal more about the ignorance of Messrs Schick and Hurst than it offers in persuasive — or even relevant — analysis. In no particular order, here are a few of the more-obvious deficiencies:

  • No matter how one defines the markets, the market share of {Whole Foods plus Wild Oats plus remaining competitors considered by the court} is nowhere close to that of {Borders plus B&N plus remaining competitors}
  • National-effect mergers always get greater scrutiny than regional mergers (remember, Wild Oats is a Northeast US chain)
  • Bluntly, books are a more important commodity than organic food, both monetarily and otherwise
  • B&N is partially vertically integrated, which is going to create some very interesting issues for any merger partner.

And that's just the obvious, surface stuff. I've seen too much bullshit put forth by securities analysts who don't understand either antitrust law or the bizarre alternate dimension that is the publishing industry (and its various niches and appendages) to believe any of this crap.

I don't know anything for certain, and I'm hesitant to ascribe improper motive to what may be simple incompetence or ignorance (or, I suppose, simple difference of opinion, but I doubt it), but the report from Mr Schick leaves me with the impression that it was calculated to influence the market instead of reflect it.