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Should Amazon buy Borders?

A major Borders shareholder wants the company to sell itself to Amazon. And when a guy like William Ackerman talks, Borders is going to at least listen carefully. Trouble is, Ackerman's pitch falls flat. Borders shares are up 3% on the news today to $6.94.

Ackerman is the billionaire founder of a hedge fund that owns about 30% of Borders. He thinks Amazon could use a physical presence across the country (Borders has 500 stores). It would cost Amazon more than $1 billion to build those stores on its own, but it could buy Borders for $400 million, Ackerman said. 

If Amazon wanted to open stores, it would have done so a long time ago. But Ackerman says that life's about to change for Amazon in a way that might make Borders more attractive.

What it comes down to is sales tax. Amazon doesn't have to charge sales tax in many states because it doesn't have a physical presence there. And that absence of a sales tax gave the company a big advantage over other stores. But 18 states are going to start requiring that Amazon and other online retailers collect those taxes anyway.

Here's the way Ackerman sees it: If Amazon's being forced to collect sales tax now, it might as well have a physical presence in those states.

What Ackerman doesn't mention is that in buying Borders, Amazon would be taking on a troubled company that has suspended its dividend, closed underperforming stores, watched shares fall precipitously and faced liquidity issues that forced it to borrow $42 million from Ackerman's own hedge fund. 

Amazon knows all this. And its shareholders shuddered at the thought of a Borders buy today, sending the stock price down nearly 3% to $75.20. 

Related reading:

Borders takes on Amazon with new site 

Amazon shares overvalued? Who cares? 

Hard look at Amazon's free cash flow

Internet sellers cheat states by dodging sales taxes

Let the tax collection begin

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Comments

 

Sales taxes are levied to pay for services the state gives to businesses

(in theory). So why should an internet business pay state taxes when the

state gives them nothing in return?

We all know that sales taxes are used for other things that have nothing

to do with the business community. The greedy legislators just want more

cash for pork.

phybrr (Posted 06.13.08 2:52 PM)

the sales taxes could also be levied so as to level the playing field with companies who do support the states economy

steve (Posted 06.13.08 4:41 PM)

amazon is not going to buy stores in states that will give it a tax  physical presence

where states can tax all their sales which would kill amazon buisness

cds (Posted 06.13.08 9:10 PM)

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