Wednesday, December 8, 2010

Bizmology

Bizmology

Barnes & Noble and Borders Group: A Sears, Kmart Redux?

Posted: 08 Dec 2010 09:09 AM PST

Today The New York Times DealBook asks the question: Does it make sense to combine two booksellers with eroding sales and growing competition from the likes of Amazon.com and now Google? (Read here)

I’ll answer that question with one of my own: Did it make sense to combine ailing department store operator Sears, Roebuck & Co.  and teetering discounter Kmart — both suffering at the hands of Wal-Mart, Target, Kohl’s and others — to form Sears Holdings?

My answer to both questions is a resounding NO! Five years after hedge fund manager Eddie Lampert combined the two deeply troubled retailers, investors, shoppers, and analysts have yet to see much in the way of positive results at either Sears or Kmart stores. Indeed, Lampert’s main contribution to date seems to be the closing of unprofitable locations. Investors are becoming impatient and confused as they wait to see any evidence of a turnaround (see previous post). Those who initially thought that the combination was a big savvy real estate play are wondering why Lampert is still stubbornly, and apparently ineffectively, tinkering around with the retail side of the business.

Now along comes another hedge fund guy, William Ackman, offering to finance a $960 million merger of Barnes & Noble with its smaller rival Borders Group. Barnes & Noble put itself up for sale this year and narrowly won a proxy battle with another activist investor, Ronald Burkle. Ackman, who waged an unsuccessful proxy contest against Target Corp. in 2009 and has recently accumulated enough of Borders Group’s shares to rank as its largest investor, hasn’t shared his plan on how he’d make the combination work. Both Borders and Barnes & Noble are facing a consumer switch toward digital products and online shopping that threaten their traditional retail model.

While a merger of the two booksellers could lead to cost saving through the closing of redundant stores, buying the combined company additional time, it will not solve the fundamental problem: the structural change in the book business. Also, as the only two bricks-and-mortar booksellers of any size, a Barnes & Noble-Borders combination may face stiff opposition from the Federal Trade Commission.

Not only am I skeptical about the merits of the proposed merger, I doubt it will even get off the ground. Better for Barnes & Noble and Borders to address the changing book market on their own, than join forces and die a slow death together.

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Picture by Lee Burton,  used under a CC-Share Alike license.

Offshore drilling in the Eastern Gulf of Mexico? Not so fast.

Posted: 08 Dec 2010 07:33 AM PST

 

In early April the Obama administration moved to open up a large swath of East Coast waters and other previously off limit areas in Alaska and the Gulf of Mexico. The decision meant that by 2012 drilling could begin in offshore waters from Delaware to central Florida, the northern waters of Alaska, and 50 miles off the coast of Virginia. The president was also pushing Congress to lift its longstanding ban on drilling in the eastern Gulf of Mexico, 125 miles off of Florida (out of sight of the tourists on Florida's beaches).

Then in  late April came the news that BP‘s Deepwater Horizon rig had exploded above the Macondo well in the Gulf of Mexico. It sank with the loss of 11 workers. The resulting, well-documented weeks and weeks of uncontrolled oil spilling into the Gulf  led to the Administration putting a moratorium on deepwater drilling. After months of clean-up and safety inspections of operating platforms in the Gulf, in October the moratorium was lifted with a more stringent permitting process in place.

Now, in December, the other shoe has dropped. Interior Secretary Ken Salazar announced a revised oil and gas leasing strategy for the Outer Continental Shelf (OCS). Citing the BP rig disaster and the need to "raise the bar in the drilling and production stages for equipment, safety, environmental safeguards, and oversight,” Salazar announced the Department had decided against allowing offshore oil drilling in the eastern Gulf of Mexico and along the Pacific and Atlantic coasts. The Western Gulf of Mexico, Central Gulf of Mexico, the Cook Inlet, and the Chukchi and Beaufort Seas in the Arctic remain as areas available for potential leasing before 2017.

So, it is no longer "drill, baby, drill." The American Petroleum Institute is not happy, bemoaning the loss of new drilling areas off of the Continental US. Royal Dutch Shell is putting on a brave face during the announcement, looking to the opportunities in the Arctic that have been green-lighted by Salazar's announcement.

For all the advocates of increased drillings in the Gulf, here is a headline from a recent ABC News report to ponder: "Submarine Dive Finds Oil, Dead Sea Life at Bottom of Gulf of Mexico."

Perhaps caution is the best course.

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Picture by Ken Lund, used under a CC-Share-Alike license.
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