Borders’ deal hopes chilled by antitrust

June 6, 2007

A plan by antitrust regulators to sue to block Whole Foods Market Inc.’s purchase of Wild Oats Markets could put a chill on the retail merger scene, and cool the takeover hopes of book-store chain Borders Group Inc.

Goldman Sachs on Wednesday downgraded Borders to “sell” from “neutral,” saying it expects the bookseller’s stock to fall due to the reality of rigorous antitrust regulation of retail deals.

Shares of Borders, long-rumored to be a takeover target, have risen about 10 percent in the past year in hopes it could be acquired by rival Barnes & Noble Inc. or private equity firms. A possibility previously discussed here by Reuters.

Borders’ stock shed 98 cents, or 4.5 percent, to $20.80 in early trading on Wednesday in the wake of the Goldman downgrade. The stock hit a 52-week high of $24.19 in November. The book store has a market capitalization of about $1.3 billion.

Regulatory opposition to the merger of Whole foods and Wild Oats makes a deal less likely for Borders, Goldman said. Shares of Borders, the second-largest U.S. bookseller, are overvalued on a purely fundamental basis, Goldman said.

The Federal Trade Commission on Tuesday it would challenge the Whole Foods-Wild Oats deal in federal court because it would eliminate competition between “two uniquely close competitors” in many local markets around the United States.

Even if a deal with Barnes and Noble seems unlikely, private equity firms could still have an appetite for Borders. Last month, Reuters reported that private equity firm Pacific Equity Partners had expressed interest in buying the 24-store Australian unit of Borders. 




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