Ingram Content Group celebrates its fiftieth anniversary this year and is commemorating the occasion with the publication of THE FAMILY BUSINESS: How Ingram Transformed the World of Books on April 20. Author Keel Hunt conducted extensive interviews with many of the key participants in building ICG over the years.
Former Simon & Schuster ceo Jack Romanos says in the book, “If you look at the last fifty years of trade publishing in America, Ingram’s evolution is as important as anything that’s happened…. I wouldn’t have wanted to have to run a great publishing company without Ingram’s help and support.”
But the story of Ingram’s growth and adaptation to key industry intermediary throughout the digital transformation might have come to an abrupt halt over 20 years ago. And that story remains relevant as regulators currently review the proposed acquisition of Simon & Schuster by Penguin Random House. Below is an edited excerpt of the chapter that tells the story of “The Marriage Not Meant to Be” (between Ingram and Barnes & Noble):
It all began with a simple question at a private meeting in a Manhattan conference room in February 1998, between Len Riggio, the chairman of Barnes & Noble, and John Ingram.
Joining them in the room were several others from each company. On the Ingram side, they included Mike Lovett (Ingram’s longtime CFO and new CEO at the time), Lee Synnott, and Richard Patton, the husband of John Ingram’s sister Robin. The B&N team included CEO Steve Riggio, Len’s brother, and David Cully, president of distribution.
Meetings like this involving the two companies’ top leaders were not unusual. The country’s biggest bookstore chain and the world’s largest book wholesaler generally had plenty to talk about. Ideas for specific deals were always being floated, especially by Len Riggio, whose style John describes as “free-form,” “thinking out loud.”
In this particular meeting, the members of the Ingram team were proposing an arrangement to provide distribution services for a Riggio-owned entity called Missouri Book Services, a textbook distributor separate from B&N. Both Lovett and Cully recall how, little by little, “the conversation got bigger.” Cully describes what happened next:
Len listened to everything that the Ingram team had to say. And then he turned the tables. He said, “Well, there’s another way to look at this. Why don’t we buy Ingram? What might be best is for us to combine the retail acumen of Barnes & Noble with the distribution acumen of Ingram. Maybe we could even slow down Amazon.”
That casual-sounding comment from Len Riggio proved to be a thunderbolt that would set in motion one of the most tumultuous episodes in the history of either company.
The discussion turned concrete with surprising speed. Riggio suggested that B&N would pay $450 million for Ingram Book Group. No agreement was reached, but no one stormed out of the room, either. It was clear that both teams were intrigued by the idea of forming a permanent partnership.
In some ways, that wasn’t surprising. Ingram and B&N were two of the best-run companies in any corner of the book business, filled with smart, talented people. Cully recalls his impression of the Ingram team members:
“I wasn’t fooled by the fact they were polite and had Southern accents. They were sneaky smart, strategically and tactically good. We used to call Lee Synnott the Grey Fox—I considered him a mentor. He taught a lot of people a lot of different things, and it was a pleasure to learn from him.”
Meanwhile, Len Riggio had catapulted Barnes & Noble into the modern era, bringing intrapreneurial smarts to the challenge of transforming bookselling from an old-fashioned backwater into a high-growth, pop-culture industry. A merger of these two companies would bring together many of the most creative minds in publishing, creating a business powerhouse that would be hard to stop.
* * *
The Ingram delegation returned home, where they would continue the ultra-secret discussions over the next several weeks, both at corporate headquarters in Nashville and inside the executive suite of the Book Group in La Vergne.
They found the idea of selling their business to B&N, either in whole or in part, both compelling and troubling.
On the one hand, joining forces with Barnes & Noble could clarify much of the future for Ingram. Seismic changes in the publishing industry had been threatening some of the basic underpinnings of Ingram’s wholesaling business.
The chief threat came from the ongoing trend of consolidation. Ingram had thrived largely because of its role as a large, well-capitalized, highly efficient intermediary connecting two groups of small, numerous, relatively disorganized businesses—book publishers and book retailers. The managerial, logistical, and technological innovations that Ingram had already brought to these two groups of businesses had helped them all grow and become more profitable.
Now, however, both of these groups of businesses were rapidly consolidating. On the publisher side, the percentage of sales generated by the Big Six publishers was growing steadily as the major media conglomerates bought up proud independent publishers one by one. On the retail side, bookselling was increasingly dominated by a handful of national companies, including both the bookstore chains (led by B&N and Borders) and the rapidly growing online booksellers (overwhelmingly led by Amazon). As the many small players on both sides of the industry gave way to fewer, bigger participants, the need for Ingram as the ultra-efficient middleman came into question. More and more of the industry giants were eyeing ways to operate independently—for example, by creating their own systems for warehousing, distributing, and shipping books rather than relying on Ingram.
Thus, the evolution of the book business was challenging the strategic creativity of Ingram’s leadership as never before. Partnering with B&N would be one way of resolving these issues. Ingram could emerge as a winner in the consolidation game by becoming a partner with one of the game’s biggest, fiercest players.
Viewed in these terms, the deal made perfect sense. But it raised other concerns that were disturbing.
Ingram’s leaders had long prided themselves on their role as neutral supporters of all parties in the publishing business. In particular, Ingram had scrupulously avoided picking sides in the war for retailing dominance. The big bookstore chains, the feisty independent stores, and other book retailers like department stores and big box discounters had all found Ingram to be friendly, valuable allies in growing their businesses.
A deal with B&N would change all that. B&N was already resented for its size and power by the independent bookstores. A partnership with Ingram was certain to be attacked by those booksellers and by trade groups like the American Booksellers Association.. Federal antitrust regulators might also weigh in. Ingram had bought and sold a number of businesses by this time, but it had never engaged in a transaction of this size and importance in the book industry.
At the same time, John recalls being approached by other members of the family who asked, “How do you know there isn’t somebody else that would pay you more money?” It was a good question, and the only way to answer it was to find out. So Ingram engaged the investment banking firm Goldman Sachs to represent Ingram in discussions with prospective buyers.
During the summer of 1998, Ingram and Goldman Sachs made formal sales presentations to three prospects. They met with leaders of the Borders bookstore chain at the company’s headquarters in Ann Arbor, Michigan. They met with Jeff Bezos and other executives from Amazon at their offices in Seattle. And they spoke with Thomas Middelhoff, CEO of the German media giant Bertelsmann, and others from his team in a meeting room at Euro Disney, outside Paris, where Middelhoff was vacationing with his family.
The upshot of this process was that Barnes & Noble increased its offering price for the book group from $450 million to $600 million. “I can’t imagine that made Len very happy,” John says. “But I believe the big thing Len was concerned about was whether Amazon was going to step forward and buy Ingram. It made sense for B&N to do whatever it took to keep that from happening.”
In November 1998, the two companies jointly announced that B&N would acquire Ingram Content Group for $600 million in cash and stock, “subject to regulatory review.” The Federal Trade Commission would examine any possible antitrust implications of the proposed marriage between the biggest book retailer in the United States and the country’s leading book wholesaler. The FTC review process was expected to take several months, during which the sale would be on hold.
The announcement set off the expected firestorm. A memorable headline in the Washington Post stated, “Barnes & Noble Buys Ingram and Sets off a Powder Keg.” The anger among smaller book retailers played out in many ways. Protests were lodged in both the general and trade news media, as well as at BookExpo, held from April 29 to May 2, 1999, in Los Angeles. At the urging of indie booksellers, visitors to the vast trade show floor avoided Ingram’s large booth. (Lovett says this was the first time Ingram had needed a private security detail at the convention.) The ABA itself collected over 125,000 customer signatures in a petition drive to block the deal.
The blockbuster public announcement also launched internal scrambling at Ingram in order to supply the historical and financial data required to complete the deal. Lovett recalls the disturbances that this period brought with it:
I remember this as a time of FTC depositions, going to New York City almost weekly to meet with Len Riggio and his management team, and dealing with the 360-degree fallout with other customers, publishers, and associates—a trifecta of pain.
Lovett also suspects that the months of waiting created an opportunity for B&N’s leadership to sour on the deal. John concurs, based largely on his feeling that Riggio’s main goal was to keep Ingram out of the hands of Amazon. “As the deal dragged on,” John says, “and it became clear that Amazon was going to build more of their own warehouses, rather than buy Ingram, I think B&N got less interested.”
* * *
On the other hand, the FTC rarely even tried to block a vertical merger attempt—and the head of the commission pointed out to a reporter from the Times that it had been twenty years since any such blockage had been successful in court.
But news stories published on June 1, 1999, revealed that the FTC staff planned to recommend that the agency seek to block the purchase. John Ingram and Bill Morelli, his general counsel, received a series of calls starting in the middle of the morning from the Ingram company’s legal team in Washington, DC. They all delivered the same message. Not only would the FTC withhold its approval of the merger, but any ensuing litigation could run for years.
FTC commissioner Sheila F. Anthony explained some of the reasoning that led her to oppose the merger in a speech to the American Bar Association almost a year later:
Ingram is the dominant wholesaler. The gap between Ingram and the next largest wholesaler, Baker and Taylor, is very large. There were also indications that Ingram is even more important to the bookselling industry in a qualitative sense than its quantitative dominance suggests—that is, it simply does a better job of distribution. The combination of Ingram with Barnes & Noble’s internal distribution center may well have increased the already high concentration in the overall book wholesaling market with the result being higher costs for retail competitors.
The main vertical theory in the case was that the merger threatened to “raise rivals’ costs.” This theory predicted that, after the merger, Barnes & Noble could raise the costs borne by rivals such as independent bookstores and Internet retailers. Through this acquisition, Barnes & Noble would acquire the power to foreclose its retail competitors from access to an important upstream supplier.
To this day, John feels the economic and legal concerns raised by the FTC were overblown. But he also feels it was the right decision for Ingram to back down from what would have been a long, costly, and perhaps fruitless battle.
“Once we knew that the FTC was going to contest the deal, that meant a trial,” John says. “And while we thought the facts were strongly on our side, time was not. Given the unhappiness of the independent bookstores, it made no sense to continue going forward. And so we pulled the plug on the deal.”
The next day, on June 2, Ingram and B&N issued a joint statement announcing that the proposed merger was dead.
The independent booksellers who had opposed the deal were jubilant, of course. And some other industry observers were also relieved to know that Ingram would remain independent. As Jack Romanos, the chief executive at Simon & Schuster, recalls: “Knowing Len’s aggressiveness towards the publishers, I think it would have been a nightmare for us to have to deal with that combined entity.”
For John, the death of the B&N deal was a heavy blow. After absorbing the news, John stepped inside Morelli’s office and closed the door. The two men sat and talked for just a few moments.
“Well, John,” Morelli said, “this has been quite an experience.”
“Yeah,” John agreed. “And ‘experience’ is what you get when you don’t get what you want.”
“And that was the end of it,” John now says. “There was no use feeling sorry for ourselves—that would have been a waste of energy.”
From The Family Business, © 2021 by Keel Hunt, West Margin Press, reprinted by permission.