Barnes & Noble Drops Ingram Deal

With government regulators moving to block the deal, Barnes & Noble Inc. on Wednesday called off its proposed $600-million merger with the country’s largest book wholesaler, abandoning plans for a union that could have reshaped the retail book industry.

The New York-based chain announced plans in November to acquire Ingram Book Group, a closely held company that last year sold and distributed $1 billion worth of books to stores nationwide. Independent retailers and online vendors vehemently opposed the combination, arguing that it would force them to buy books from a subsidiary of an archrival--a situation that would have been a little like Burger King being forced to buy its French fries from McDonald’s.

The Federal Trade Commission agreed. On Monday, agency staffers had reportedly decided to recommend challenging the planned merger in court, arguing that it could lead to higher book prices and prevent new players from entering the fast-growing Internet bookselling market.

“If Ingram was in the hands of a main competitor, you had to be concerned about that,” FTC Chairman Robert Pitofsky said in an interview Wednesday. “You have to be concerned about where the next party that wants to get into the market is going to buy its books.”

Officials at Barnes & Noble and at Ingram said Wednesday that the FTC erred in accepting the sometimes emotional objections of independent booksellers. Facing the prospect of protracted legal fight, however, the companies chose to walk away from the deal rather than take on what could have been a losing battle.

“Ultimately, we don’t think the consumer was served,” Barnes & Noble Chief Executive Leonard Riggio said in an interview Wednesday. “Here we are, selling books at 10%, 20%, 50% off list price, and the FTC is supporting a group which largely sells those same books at list price. What’s happening here?”

The fight over the merger was considered a life-or-death struggle by some independent booksellers, many of whom have been squeezed by national chains and the growth of Internet merchants such as Amazon.com. An all-out lobbying effort against the proposed deal, led by the American Booksellers Assn. trade group, swamped the commission with letters and e-mail.

Many stores had planned to sever their relationship with Ingram had the deal gone through, and some had already begun to reduce their orders from the company. The stores fretted that Ingram would give preferential treatment to Barnes & Noble, either by divulging sensitive credit information to Barnes & Noble, or by increasing its inventory of bestsellers at the expense of the more obscure titles in which they specialize.

The controversy stirred by the Ingram deal also highlights the race now on among big players in the online bookselling business to build quick and reliable systems to send books across the country.

With the purchase of Ingram, which owns 11 warehouses nationwide, Barnes & Noble could have expanded its network quickly and bolstered its online site, Barnesandnoble.com. Now company executives say they will build two centers on their own--in Reno, Nev., and Memphis, Tenn.--saving money but losing time in their efforts to compete with electronic retailers.

Barnes & Noble shares rose $1.25 to close at $28.63 on the New York Stock Exchange. Barnesandnoble.com shares fell $2.81 to close at $17.19 on Nasdaq.