The deal meant that Indigo would pocket a five-fold gain, $165 million, on its Kobo investment of $31.6 million—no small amount for a company whose stock market capitalization at the time was $161 million.
To steer the foreign acquisition of Kobo through the uncertain waters of a Canadian Heritage review, Reisman turned to another adviser in her inner cabinet. Rob Prichard, former University of Toronto president, former Torstar CEO and a corporate Mr. Fix-It as the chairman of Torys, has been a close friend of Schwartz and Reisman’s for decades. Canadian Heritage typically can take months to complete a review of a foreign takeover to ensure the deal meets the test of being in Canada’s best interests. Kobo, however, was so short of cash, that Schwartz says he was “desperately worried that we couldn’t get approval fast enough.”
It took several meetings with senior Heritage Canada and Industry Canada officials for Prichard and Torys partner Omar Wakil to argue that the sale of a made-in-Canada book reader, technically a protected cultural business, was good for the country. Under the 1985 Baie Comeau policy, Canada requires Canadian book publishers and sellers to be majority-owned by domestic investors. The growth of online sales and digital readers, as well as industry financial woes, had prompted Ottawa to announce in 2010 that it was reviewing the policy. Prichard seized upon the review as an opportunity for the Kobo deal. His first argument was that Kobo was such a drain on Indigo’s finances that the bookseller would likely have to keep selling off what had been reduced to a 51% stake to keep raising cash. At least with Rakuten, Prichard argued, Kobo would have an owner willing to keep its head office in Toronto, retain Serbinis as CEO and give him a budget to more than double his Canadian staff.
Prichard’s second line of argument was to assert that the $315-million deal “would make Indigo stronger,” he says. At a time when bookstores were collapsing or shrinking around the globe, he said, the Kobo deal would infuse nearly $165 million of cash into a national retailer that was transforming its business to survive the digital shifts toward e-readers. Just 31 days after the review started, on Dec. 15, Heritage Canada approved the sale.
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For Schwartz, the technology fretter, the lucrative Kobo sale is a testament to his wife’s courage to ignore her naysayers, including himself, to build and then sell an enterprise that has handed her a “financial fortress” to take on her “next set of risks.”
But Reisman has won more than a big-deal profit from her Kobo sale. She has reminded entrepreneurs in a rapidly evolving digital world that often timing is just as important as innovation. She had the fortitude to bet on global strategy for the Kobo start-up before most other e-reader giants were attacking foreign markets. Then she had the good fortune and wisdom to sell to a foreign powerhouse when intensifying competition was threatening the future of smaller players.
Sitting in her boardroom, Reisman is surrounded by her next set of risks. A room that once prominently displayed Indigo’s bestsellers has been converted to simulate the effect of a Grecian seaside villa. It’s a sort of showroom of Indigo’s future. There are the whitewashed walls, a floor-to-ceiling photo of the Aegean Sea, and bookshelves loaded with blue pottery, knitted blankets, candles and coffee-table books celebrating seaside homes and resorts. Most of the books on the shelves have been covered in white paper, evoking tombstones.
Whether the message is intentional or not, there is little doubt that Indigo’s 16-year history as a bookseller is shifting as digital books chew up the market. The woman who has told Canada for years what to read with “Heather’s Pick,” now wants to influence how we decorate our homes, pamper our bodies and gift friends.
And here come the doubters again. How can Indigo compete against powerful U.S. lifestyle purveyors, such as Crate & Barrel and Target, which are pushing into Canada? Reisman’s vision is to build a cultural lifestyle store with books at the core. The diversification strategy requires a difficult balancing act. If Indigo places too much emphasis on books, it is exposed to the digital onslaught. If it diversifies too quickly into lifestyle products, Reisman risks diluting one of her most valuable assets, a near-monopoly hold on Canadian bookselling. The more tablecloths, blankets and candles it sells, the less Indigo will be able to distinguish itself from giant U.S. retailers who are crowding into Canada to compete for Canadian consumers. Reisman has heard all this before. Remember, she says, what all the naysayers said about Kobo.
“They all said we were crazy, people started selling the stock, blah, blah, blah, blah. . .we just did it.” Dropping her voice to a husky whisper, she says with a conspiratorial smile: “I don’t care, I’ll have the last laugh.”