Chapters Inc. – Indigo Books & Music Inc. merger

Issue Analysis: Chapters Inc. – Indigo Books & Music Inc. merger

When Indigo Inc., on November 28, 2000 made its bid to obtain Chapters Inc; many industry analysts had different ideas about the merger. Tom McFeat of CBC News Online recognized the need for healthy competition in the market place. Mcfeat compared Chapters and Indigo Inc.’s number of stores and found that there would be no competition in the Canadian Book Industry if the two chose not to merge. He identified that with the merger of Chapters Inc. and Indigo Inc. stores would have to be closed resulting in Job losses for those who are employed by the respective companies. This does not include the lost revenue and jobs for independent bookstore owners who cannot compete with such a large conglomerate. In consequence of the merger, Chapters Inc., known for discounting bestsellers up to 50% off the suggested selling price, was forced to limit price-cutting to a maximum of 30%. McFeat also revealed the concern of The Writers Union of Canada, which was “that if the merger went ahead, it would be even more difficult for an author to get published unless the book was likely to be a best seller”. Paul Brent of The Financial Post views the merger as being necessary for the two companies so they can cut their hefty losses. He criticized Stevenson’s eagerness to build up a superstore chain from scratch as being “foolish”. He evaluates Chapters Inc.’s poor ability in managing with bad business strategies, weak Internet e-commerce and the failure of Pegasus warehouse wholesaler. Overall, Indigo Inc. suffered the most losses, and always fell short of Chapters Inc.’s superior book sales. In the end, Indigo Inc.’s idea of merging seems to be the most idealistic. “Heather Reisman lays out the business logic of the combination: reducing overcapacity…elimination of corporate duplication…and the tax losses.”

In essence, the idea of creating an industry monopoly turned out to benefit both companies; most employees were not terminated but were relocated. The large losses were immediately reduced by $20 million; Chapters acquired retail giftware in their stores and Indigo Inc. adopted Chapters loyalty programs. In Chapters Inc. and Indigo Inc.’s effort to save their own operations, they have put many other independent operations out of business. Lichtman’s, an independent bookseller, after establishing its chain of nine stores over many years, declared bankruptcy in March of 2001 because of poor sales. Even though Chapters Inc. was forced to cut their bestseller discounting, small entrepreneurs are having a hard time matching Chapters – Indigo Inc. Competition Regulators should put more restrictions on Chapters – Indigo Inc. hopefully aiding independent stores to stay in business.