Is William Ackman barking up the wrong tree at Borders?

Posted Nov 28th 2007 2:00PM by Zac Bissonnette
Filed under: Market Matters, Bargain Stocks

Super-investor William Ackman has a well-deserved reputation, but I have to admit being puzzled by his recent decision to raise his stake in bookstore chain Borders (NYSE: BGP) to 17.1%.

It's a pretty classic contrarian bet. Borders has been hitting new lows of late on increasing losses and middling sales increases, but what does Ackman see here?

I have to tell you: I have no idea. Borders can't compete with web-based retailers on price, and its big box bookstores have developed a Wal-Martesque reputation among a lot of book aficionados, who believe in supporting independent booksellers.

Of course, CD sales are in a terminal decline, and DVD sales will likely taper off at some point as new methods of delivery gain broader acceptance.

Some have suggested that Ackman is optimistic that Chinese-toy recalls will boost book sales for the holiday season. But I think Ackman is probably more long-term oriented, and wouldn't be buying a 17% stake in a bet that the quarter will beat expectations.

Tags: Ackman, BGP, Borders