Amazon.com, Borders In Online Book Deal


Amazon.com Inc. and Borders Group Inc. are expected to announce a partnership Wednesday that will see the two companies join forces in the Internet book-selling business.

The alliance, scheduled to be announced at a press conference in New York, is expected to involve Amazon (AMZN) effectively taking over the online operations of Borders (BGP), according to people familiar with the matter. Borders is expected to effectively exit from the online book-selling business, these people said.

Further terms of the alliance couldn’t be learned, though Amazon is expected to receive promotion from Borders through its chain of off-line bookstores.

A Borders spokeswoman declined to comment on the possibility of an Amazon partnership. Amazon scheduled a press conference for Wednesday to be hosted by Chief Executive Jeffrey Bezos. A spokesman for Amazon declined to comment in advance of the press conference.

Amazon has been casting a wide net lately with potential retail partners, talking to everyone from electronics retailer to Best Buy Co. (BBY) to Wal-Mart Stores Inc. (WMT) to other Internet retailers about possible alliances, according to people familiar with the matter. Best Buy and Wal-Mart have declined to confirm the talks.

Amazon executives, meanwhile, haven’t mentioned the names of any potential partners, but it has said repeatedly that it believes deals with traditional retailers are appealing. Last year, the company struck an alliance with Toys “R” Us Inc. (TOY) under which Amazon took over online operations for the toy retailer. That alliance generally has been greeted positively by executives of both companies and analysts.

For Borders, the Internet has largely been a misadventure. The book retailer didn’t begin selling books on the Web until May 1998, three years after the launch of Amazon.com and one year after Barnes & Noble.com debuted.

The experience has been a costly one. In a news release in late January, the company noted that “the direct-to consumer portion of its Internet business will not be profitable in the foreseeable future.” The retailer also disclosed it would write down more than half of its Borders.com assets. For the year ended Jan. 28, Borders.com lost $18.4 million, a 7% increase over the year prior.

In a move designed to cut costs, Borders in March signed a fulfillment deal with Ingram Book Group, the book-distribution unit of closely held Ingram Industries Inc., Nashville, Tenn. Terms call for Ingram to handle the bulk of order processing for Borders’s online sales and special orders.

Borders last year put itself up for sale. But when a satisfactory offer didn’t materialize after four months, Borders pulled itself off the market. The withdrawal was embarrassing for management, then under pressure of the company’s low stock price.

By the end of the year, an investor group asked the company to change its bylaws to ensure the five highest-paid officers would “devote full-time and attention to corporate business.” The shareholder group chastised Borders for incurring “substantial cash drains” through its Internet activities, international expansion and the ill-fated acquisition of toy business All Wound Up.

The shareholder group praised competitor Barnes & Noble for having “creatively pursued strategic alliances” with its web strategy. Barnes & Noble.com is 40% owned by Germany’s Bertelsmann AG, with Barnes & Noble Inc. owning the same sized stake. The remainder is held by the public.

Copyright (c) 2001 Dow Jones & Company, Inc.