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Whitcoulls' plans to buy all the Borders stores in New Zealand and Australia are by no means a sure thing, with Australian book chain Dymocks now emerging as another serious contender.
Although Dymocks Group chief executive Don Grover will not confirm that his company has its hat in the ring - KPMG, which is handling the Borders sale, is frowning on companies talking to the press about their intentions - he says if Dymocks is looking at the deal, it will be the better company to buy Borders as far as New Zealand is concerned.
"It would strengthen the level of competition in the market rather than place more into the dominant hands," he says.
The application to purchase Borders, being considered by the Commerce Commission, would trigger "quite a bit of public debate", he says.
"In New Zealand it would potentially give us that growth that we have been looking for."
There are 20 Borders stores in Australia and four in New Zealand. Dymocks has five stores in New Zealand, and will have seven by the end of the year, plus another couple in the new year. It is aiming for 20 stores within five years.
Dymocks is the second largest book retailer in Australia. One complication of a possible deal is that 18 of the 20 Australian Borders stores have a Dymocks close by. Grover says this should not be a problem, with stores more than happy to "co-locate".
Although Dymocks is run as a franchise network, Grover says he would run the Borders business in its successful non-franchised structure.
Sources close to the A&R Whitcoulls Group, owned by Australian private equity operation Pacific Equity Partners (PEP), say that with just four stores up for grabs in New Zealand, they aren't anticipating a competition problem.
Whitcoulls has about a 30 per cent market share in New Zealand while Angus & Robertson has an 18-20 per cent share of the more fragmented Australian books market.
Berkelouw Books, an Australian private book company, is also said to be interested in Borders.
The sight of Paper Plus executives scoping out Borders' Australian stores has led to reports that the franchise company might also be mounting a bid. Paper Plus announced a change of strategic direction this year, saying it wanted to be a bigger force as a book seller. Buying Borders would certainly make the industry sit up and take notice but it would be an ambitious deal for the company.
Paper Plus chief executive Ron Smith has confirmed the company is interested in Borders. "We've had a look. Whether the company would proceed to make a bid would depend on a number of factors."
The highly acquisitive Woolworths Australia is also rumoured to be looking at Borders, but retail analysts are not taking that too seriously as it is considering eight acquisitions at the moment.
One Australian analyst says the Australian market differs from New Zealand because variety stores such as Target, K-Mart and Big W are now making inroads into the book sector.
All bids for Borders must be in by the end of this month. For those who are already showing serious intentions, a four-week due diligence process has started.
Bidders will want to make sure the business model is as profitable as it claims to be. It is well known that Borders, which can stock as many as 120,000 different lines of books, tends to be a loss leader when it enters a market. Borders arrived in Australia in 1998 and in New Zealand in 1999.
It is likely most of the interested parties would want to keep the Borders brand and the management team led by John Campradt.
Early in the sale process Campradt was said to be considering a management buy-out but this possibility has since gone quiet. A company such as PEP might consider giving the management team some equity in the Borders business if that appeals, says one ARW source.
Borders regional manager Justin Barratt says he is still passionate about the Borders brand, and this week is in Albany on a staff recruitment drive for the latest store. Whereas the British Borders business has had it problems, "the Asia Pacific part of the international division is a money-making concern," he says.
"It is such a great brand, I have never worked for such a good company," says Barratt.
Andrew Wilkins, publisher of Bookseller & Publisher magazine in Australia, says book publishers across the Tasman will not be backing the PEP-funded ARW to win its bid for Borders.
ARW has been negotiating tough new conditions with its publishers and they will not want to see that happening with Borders, says Wilkins.
He says the publishers love companies such as Borders, which stock a wide range of books, including a lot of "back list" titles, which are often hard to sell.
Booksellers the size of Borders can "make a book", says Wilkins.
The company Borders has hurt the most since it arrived in Australia is Angus & Robertson, he says, while Dymocks has withstood the competition better.
"Increasingly a lot of publishers were finding that Borders were selling more and A&R were selling less," he says.
The publisher is surprised that PEP is talking about a A$100 million (NZ$117.5m) price tag and is warning that buyers should look closely at how profitable Borders is.
In Britain, the Borders Group received a disappointing price for its 70 stores, where it operated in particularly dire conditions. The new owner, Risk Capital Partners, paid an initial £10m (NZ$27m) and may pay £10m more if certain conditions apply.
Linda Henderson, CEO of Booksellers NZ, says Borders has always emphasised that Asia Pacific has been a lot more successful than its British counterparts. New Zealanders remain well catered for with bookshops, she says. There are 500 booksellers in New Zealand for a population of 4 million, while Australia has 800 booksellers with its population of 21 million.
When the dust settles in New Zealand the same challenges will apply - competition from the internet and large discounters. Retail analyst Tim Morris, of Coriolis Research, says this is why he is quite negative about the book market.
Borders has probably done "a certain amount of damage" in New Zealand, he adds.
Whoever succeeds in buying Borders by November should benefit from the Christmas rush. Henderson says bookshops have already started receiving their seasonal supplies.
"We are going into pre-Christmas time. It starts earlier and earlier every year - all the new published stock is coming into the shops."
