Indigo Books & Music Inc., Canada’s leading book and lifestyle retailer, announced Wednesday it has agreed to be taken private by Trilogy Investments L.P. (TILP) and Trilogy Retail Holdings Inc. (TRHI) whereby TILP will acquire all of the issued and outstanding common shares of the company that Trilogy, its affiliates and joint actors do not currently own, for $2.50 in cash per share, subject to approval by the holders of Minority Shares and other customary closing conditions.
Trilogy, together with its affiliates and joint actors, currently owns an aggregate of 16,774,665 common shares of the company, representing approximately 60.6 per cent of the issued and outstanding common shares. Trilogy is controlled by Gerald W. Schwartz, a member of the board of directors at Indigo.
“Following careful consideration of a wide variety of factors and negotiations with Trilogy that resulted in a material increase to the price first offered to minority shareholders of Indigo, the Special Committee has determined that the Transaction is in the best interests of Indigo and its minority shareholders,” said Markus Dohle, Chair of the Board and Chair of the Special Committee which was created to look into the proposal, in a statement.
“Since its inception, Indigo has established itself as a cherished Canadian brand with an important leadership role in the Canadian publishing and bookselling industries. We believe that this transaction will provide minority shareholders with a substantial premium for their shares following some challenging years for the business, while also ensuring a strong future for Indigo with full ownership by a team that has demonstrated a deep commitment to Indigo’s mission.”
Bruce Winder, Retail Analyst & Author, said going private is a good move for Indigo.
“The retailer needs a serious overhaul and it will probably get uglier before they can turn things around. This is best done in private as Indigo would be forced to make some hard decisions with customers, employees, suppliers and investors watching,” he said.
“They probably need to get smaller in the near term and that doesn’t bode well with public investors. The retailer was bought far below its previous high from a share price perspective so the new owners are getting a good deal which gives them financial flexibility to reinvest in the business once they get their strategy set.
“Hopefully Indigo can right the ship and find a solid path to profitability in the future.”
George Minakakis, Founder and CEO of the Inception Retail Group, said there are several reasons why this is a good outcome.
“Now, there is the possibility of brand and cultural preservation; it is reassuring that Indigo remains a big contributor to Canadian culture. It can stabilize their financial footing and keep them away from the watchful scrutiny of investors, who can do more damage to brands than necessary. There are plenty of retailers who should do the same. Full ownership by Trilogy allows for a unified strategic direction, which can streamline the decision-making process and accelerate the implementation of long-term recovery and growth strategies. I would look at how they implement AI to enhance their customer experience. This means they must invest more capital in elevating the relationship with consumers in-store, online, and through other channels,” he said.
“Of course, we may never know how the brand performs going forward. This brand still needs to reset its purpose and vision to ensure it is leading the way in its industry. Large stores require a lot more traffic and sales per square foot. Trilogy may want to sell this business off at some point in the future, and you would need strong customer loyalty. To do that, you must understand the basic non-negotiables customers have for this brand and deliver on that first. If the move becomes more online, we could see smaller stores or the entertainment factor in Indigo needs to increase substantially to keep these large footprints. Therefore, while they are out of the watchful eye of the financial markets, they still need to recover with strategies to create long-term growth.
“At the end of the day, this isn’t a simple merchandising fix or new product introduction; they’ve been there and have done that; this is about being relevant to today’s and future consumers.”
“Indigo Books & Music is regarded as a Canadian ‘legacy’ retail brand and an important cog in the wheel of the national publishing and bookselling business,” said Michael Kehoe, Broker of Record at Fairfield Commercial Real Estate Inc. in Calgary.
“I feel that the proposed Trilogy share acquisition is positive news in an industry where capital is transient and ownership structures have been fluid to say the least in recent years. This category dominant retailer should be in good hands with Trilogy if the acquisition process unfolds as planned. On the Canadian retail scene stability is the operative word in these challenging economic times,” he went on to say.
“Indigo going private will allow the retailer to continue to restructure without public scrutiny. The reality is that Indigo needs to rock the boat and bringing Heather (Reisman) back at the helm was just the beginning,” said Liza Amlani, Principal and Founder of the Retail Strategy Group.
“The ransomware attack shifted the retailer’s focus and now they have to catch up on what matters most – how to best serve the customer with the most relevant product assortment. Going private could allow them to make changes they need in the organization while reimagining their product mix.”
“If I believed that this move was aimed at freeing company leadership to make more daring and transformational changes to the business, changes that might have otherwise been difficult as a public company, I’d be more optimistic. Companies like Nordstrom, for example, have sought to re-privatize for exactly this reason. But having seen little in the way of experimentation or innovation from Indigo up until now, I’m left unsure as to what the true underlying intention behind the move is or how it will improve their situation,” said Doug Stephens, Founder of Retail Prophet.
Indigo said the announcement on Wednesday is the culmination of negotiations that took place following the public announcement on February 1, 2024 of Trilogy’s non-binding proposal to acquire the Minority Shares.
“The purchase price of $2.50 per share reflects a 69 per cent premium to Indigo’s closing price of $1.48 per share on the Toronto Stock Exchange (the “TSX”) on February 1, 2024, being the last trading day prior to the public announcement of the Initial Proposal, a 56 per cent premium to the 20 business day volume weighted average price for Indigo’s common shares on the TSX and an 11 per cent increase in the consideration as compared to the Initial Proposal of $2.25 per share. The cash premium transaction will provide Minority Shareholders with immediate and certain value that is expected to be higher than that realizable in the foreseeable future,” said Indigo.
It said the Special Committee was established by the Board to consider the Initial Proposal, as well as other alternatives available to the company and, if it deemed advisable, negotiate with Trilogy. Following a comprehensive evaluation of the Initial Proposal and negotiations between the Special Committee and Trilogy on price and other terms of the Transaction, the Special Committee unanimously recommended that the Board approve the Transaction, said the company.
The company expects to hold the special meeting of shareholders to consider and to vote on the Transaction in May 2024. If approved at the meeting, the transaction is expected to close in June 2024, subject to court approval and other customary closing conditions.
