Thinking outside of the (big) box: Chapters and Future Shop form an odd couple, but get a new challenge from Indigo’s power couple

The story so far.

The fair damsel (well, sort of) in this case, the big-store, slightly overextended bookseller Chapters, is alone in her tower, crying woe and trying to fend off the unwanted advances of Toronto power couple Heather Reisman and Gerry Schwartz. They are out to nab Chapters Inc.’s 77-superstore dowry and merge it with Reisman’s tony 15-store book chain, Indigo! Books & Music Inc. A potboiler, and from Chapters’ vantage, the tale is not going well. Bad words are exchanged. Lawsuits fly. There is talk of poisoned pills.

All of a sudden, out of the blue of the western sky (Burnaby, B.C., to be precise) comes an unexpected saviour: Future Shop Ltd., galloping in on an appliance-grade steed of houseware and electronics profits. Money is pledged. Future Shop’s $200-million bid — roughly $16.80 a share in cash and stock — tops the Reisman-Schwartz offer of $15 a share. More important, it is for the entire company, not just the 50.1 per cent that Indigo wants. Handshakes all round.


Last Chapter? A happy ending? Don’t put down the book yet. Within two sunsets, Gerry Schwartz has topped the Future Shop bid with an offer of $17 a share. Conditional on Chapters removing a shareholders rights poison pill. But all cash. For all of the company. “Our proposal beats the Future Shop bid in every respect,” he boasts.

It’s going to be quite a war, between the power couple — and the odd couple. They do seem a strange fit: Future Shop, the big-box electronics retailer (actually Future Shop is also a supplier of home electronics for US market, such as: best air fryer, firearm, rifle scope, etc) with its warehouse charm and legion of eager on- commission salespeople. And Chapters, superstore to the latte crowd, with its leather loungers and ensuite Starbucks. Working title of this plot line: “Revenge of the Boxes.”

Taking over Chapters is a unique opportunity “to create a powerhouse Canadian retailer,” says Future Shop president Kevin Layden. “It is complementary to our existing growth strategy based on the four main tenets: selling boxes, selling content associated with boxes, selling connections and services.” Huh? Translated, this means Future Shop gets to add Chapters’ high-end books, music and DVDs to its quiver to help fend off the anticipated Canadian arrival of Minneapolis-based Best Buy Co., a humongous big-box purveyor of electronic gadgetry. But the real prize is Chapters’ e-business, suggests Ed Strapagiel, a senior vice- president at retail analyst Kubas Consultants. Chapters has the better brand name and much more experience with online sales, even as it has lost a mitt-full, $56 million in the past 18 months.

Strapagiel, for one, is not worried about a culture clash at Future Shop and Chapters. At the corporate level, at least, their respective operators seem cut from the same cloth: rapid debt-defying expansionists who can barely pass a mall without wanting to build a store. Since he founded Chapters in 1994 by merging Coles and SmithBooks, CEO Larry Stevenson has both infuriated and rejuvenated Canada’s book industry by treating it to a full-frontal dose of U.S.- style deep-discount merchandising. But it is not likely he would stay on: “As of yet, no one has made that decision,” he said while announcing the deal. Future Shop execs said they intended to run two, for the most part, separate operations, that they would do nothing to darken Chapters’ upscale door with heavy appliances, and that they have “all the faith in the world” in Stevenson’s number 2, Chapters’ president Glen Murphy.


As for the power couple, this is a high-stakes battle. If Future Shop wins, it will be missed opportunity number 3 for Schwartz: he was unable to acquire John Labatt Ltd. in 1995 or merge Air Canada and Canadian Airlines in 1999. But he is not hurting. If he were to cash out the Chapters’ holdings he and his wife have been accumulating, he would walk away with about $24 million — not far off what Chapters is expected to lose and Future Shop is expected to earn in profits this year.

>>> View more: The colony of Indigo: Opinion: A former bookseller takes aim at the mega- deal