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Kobo Inc. CEO Mike Serbinis (left) and Indigo Books & Music Inc. CEO Heather Reisman (Raina+Wilson/Raina+Wilson)
Kobo Inc. CEO Mike Serbinis (left) and Indigo Books & Music Inc. CEO Heather Reisman (Raina+Wilson/Raina+Wilson)

ROB Magazine

Inside the Kobo deal that netted Indigo $165-million Add to ...

This article is part of Report on Business Magazine's annual top 1000 rankings. See the full website here.

About two dozen dealmakers in sombre suits file into a private room at Toronto’s George Restaurant. They’ve come for a takeover ritual known as the closing dinner. But for most of the diners, the gathering could be more aptly called a surprise party.

After all, almost all of the guests arriving on this April night had repeatedly warned against creating the company they are about to celebrate.

“I thought you were going to have your head handed to you,” says Frank Clegg, retired head of Microsoft Canada, to the guest of honour.

“Everyone was telling you that you shouldn’t waste money trying,” says Rob Prichard, chairman of Bay Street law firm Torys LLP.

“I was afraid you were going to get squashed,” agrees Gerry Schwartz, chairman of Onex Corp.

With every “I told you, no,” the honoree throws her head back and offers a deep, tumbling laugh. Heather Reisman is happy tonight. Chef Lorenzo Loseto has prepared a special menu featuring pheasant-apple slaw, Cornish hen, venison, organic cheeses and coconut banana pie. The icing for Reisman is the satisfaction of having proven the world wrong.

The long-shot wager being commemorated at the dinner is a $31.6-million investment by Reisman’s Indigo Books & Music Inc. The retail chain put the money into the maker of an electronic book reader called Kobo (an anagram for book). And tonight, its sale is being celebrated.

There were many reasons to be skeptical about Kobo’s future. Indigo may be Canada’s dominant book chain, but it was a pipsqueak arriving late to an international digital battlefield ruled by vastly larger companies. Reisman’s company had never before manufactured electronic hardware—indeed, it had never manufactured anything more complex than a picture frame—and Indigo already had its hands full reinventing a 240-store chain battered by eroding book sales.

The dire circumstances only made Reisman more resolute. “If my business was going to be cannibalized, I was going to do the cannibalizing,” she tells the assembled diners.

That morbid metaphor seemed all too apt as Kobo burned through millions a month while Amazon, Apple, Sony and the giant U.S. bookseller Barnes & Noble dominated the burgeoning e-reader business. But at the cliffhanger moment in this tale, Kobo’s virtues matched the needs of a suitor from afar, attracting a surprise, and surprisingly rich, buyout. “Who would have thought, when we were putting the Indigo business plan together this past year, that we should have planned for a $165-million gain on our investment in Kobo?” marvelled Indigo’s chief financial officer Kay Brekken at the dinner party.

Reisman says she never doubted her contrarian stand on Kobo. She knew who had her back. She had a unique team of in-house advisers whom she was able to tap to oversee the e-reader’s development. She is married to one of the country’s richest dealmakers. She is coached by one of Canada’s top innovation scouts. And then, crucially, there’s her top Kobo lieutenant.

“I had my own rocket scientist,” Reisman says, grinning.

*     *     *

It takes a lot to keep Heather Reisman down. She has reinvented herself half a dozen times in the face of setbacks that would have been career-killers for a less determined entrepreneur.

In the 1970s, the mother of two left an unhappy marriage and a starter career as a social worker to learn the ropes as a management consultant. An assignment with a troubled distillery in 1977 attracted the attention of a potential acquirer named Gerry Schwartz, later to become the head of legendary buyout firm Onex Corp. Five years later, the two were married and Reisman moved her management consulting business from Montreal to her new husband’s home in Toronto.

One of her clients, and a close friend of Schwartz’s, Gerry Pencer, asked her to join the audit committee at Financial Trustco Capital Ltd. Within a few years, the trust company was engulfed by accounting and cash woes that ultimately led to a bailout. Later Reisman would concede in an interview that she was “not equipped” for the challenges of serving on an audit committee.

Her next stop was another Pencer venture, the private-label pop maker Cott Corp. A mere two years after she joined Cott as president in 1992, Reisman left abruptly as Pencer once again fended off criticisms about accounting practices. Reisman would later describe her messy departure from Cott as “a fiasco.”

Knocked down for the second time, Reisman found redemption in comfort food. In 1995 she emerged as the boss of her own private company, Now! Foods, which sold gourmet soups to grocery stores.

This turned out to be the first course of a much larger retail menu. The big-box bookstore revolution had come to Canada, in the form of Chapters, which added giant outlets to the already considerable market clout of the SmithBooks and Coles chains. To Reisman’s eye, the Chapters stores were dreary. Undaunted by Chapters’ head start, she saw an opportunity to combine the lucrative economies-of-scale of giant bookstores with the more personal touch of independent bookstores. Design guru Bruce Mau helped her put a distinctive stamp on the Indigo concept, which included cafés, reading nooks and the trumpeting of the proprietor’s favourite reads as “Heather’s Picks.”

As he’d done with the soup venture, Schwartz rolled up his sleeves to help his wife launch her new business. The night before Indigo opened its first store in Burlington, Ontario, in 1997, Schwartz and Reisman stacked bookshelves until 4 in the morning. “Here was this woman who had never been a retailer and she was doing it....She has enormous courage and foresight,” says Schwartz. In takeover circles, he is infamously averse to risk, but domestically Schwartz is partnered with a woman he cheers for making “big bets.” He says it was her idea to challenge Chapters by starting Indigo; her idea, too, to launch a takeover bid for Chapters in 2001 when the larger chain was struggling with financial and operational troubles.

After a bruising takeover battle, the couple spent $121.5 million through a private holding company to merge Chapters’ 77 superstores and 204 smaller locations with Indigo’s 16 superstores. The union gave the new chain control over more than 50% of the Canadian bookselling business. Over the long term, that market hold, likely unmatched in any other Western country, would give Indigo enormous clout to tighten trade terms with publishers. In the short term, however, it handed Indigo a distressed book chain, which Schwartz says was much more of a “total mess” than he and Reisman anticipated. Chapters was losing tens of millions of dollars and had fallen behind in payments to publishers. Its Toronto distribution centre was in such disarray that the new owners discovered more than a dozen semi-trailer trucks parked in a lot—all of them filled with books, “and nobody knew where they had come from,” Schwartz says.

It took two years of losses, cuts and restructuring for Indigo to recover. Just as it started to generate the slimmest of profits and reduce its debts, the bookseller faced another seismic disturbance: The federal government allowed U.S. online bookseller Amazon to begin selling in Canada. Indigo’s battle to fix broken bookstores shifted to the Internet. The aggressive U.S. discounter delighted consumers by slashing book prices and offering such incentives as free shipping; those same measures also drove down Indigo’s profit margins.

The tough times sparked questions about Reisman’s leadership that have dogged her ever since she launched Indigo. Did the wife of one of Canada’s richest financiers have the management chops to run the country’s largest book chain?

Reisman has always deflected questions about her marriage. But in the wake of Indigo’s recent successes with the Kobo deal, she is uncharacteristically open about her husband’s role at the company. On paper, Schwartz is the principal owner of Trilogy Retail Enterprises, the private company that controls 52% of Indigo’s shares, and is a director on the book chain’s board. In person, he is much more, Reisman says.

“My best business advice ever comes from Gerry. When it comes to negotiating transactions, there is nobody on the planet like him,” she says. She credits Schwartz with “enabling” her bookstore business, but not for the reasons that some observers assume. “Some people might say because he is rich I can do things,” she laughs. “That has had almost no impact on my career because I built each business with money that I earned or raised. It is his judgment, support and perspective as an entrepreneur that I am the beneficiary of.”

On her next big bet, however, Reisman only partially listened to her husband’s advice. When she was introduced in 2005 to the single most disruptive technology to hit the centuries-old business of making and selling books, she was not initially impressed. The new, new thing was a book-size tablet with a screen that displayed Japanese characters. The device was the first electronic reader to use a new technology known as e-ink. It was manufactured by Sony, cost $600 (U.S.) and had been purchased for her by a close adviser who had been her technology coach for years.

Ken Nickerson has been carting gadgets and technology finds to Reisman ever since he paid a visit in 2001 to her office on Toronto’s King Street West. At the time, he was a departing director of Chapters’ online unit, which was being merged with Indigo. Since then, his technical savvy has earned him a spot in Reisman’s informal inner circle of advisers. He runs a small venture-capital company that invests in technology start-ups, but he prefers to think of himself as a “gnat buzzing around in the background” that “drags people into the future.”

When Nickerson first spied the Sony Reader on an Internet site in 2005, he was convinced he was looking at the biggest book innovation since Johannes Gutenberg’s movable-type press made mass production of books possible in the 1400s. Reisman was intrigued by the Sony Reader Nickerson gave her, but she didn’t give much credence to his warning that it would turn her bookselling business on its ear. After a few minutes of poking at the Reader’s confusing buttons, she grew frustrated. It didn’t help that the display was only in Japanese. “It is actually hard to get excited about a piece of technology that you can’t communicate with,” Reisman recalls. “I threw it in my drawer.”

Reisman may not have perceived that e-readers would revolutionize her business in 2005, but what she did know was that Indigo needed a skilled technology executive to fix an expensive new inventory management system that was riddled with bugs. She also wanted to upgrade the company’s website and consumer loyalty program. For advice on the new hire, she turned to Nickerson. He had two candidates in mind. One was an “amazing” chief information officer; the other, he said, was a “rocket scientist.”

Reisman requested a meeting with the rocket scientist.

*     *     *

Mike Serbinis was not used to losing. By the time he entered the Ontario Engineering Competition in 1993, the then 19-year-old Queen’s University engineer had already been recognized by U.S. science fairs and none other than NASA for his pioneering work enhancing the performance of rocket boosters used on space shuttles.

At the Ontario fair, the young engineer was showcasing something even more remarkable. It was a frictionless motor operated by a new generation of software code that mimicked genetic coding. Because the software constantly evolved, like DNA, the motor was able to hover effortlessly above a magnetic bearing without crashing. The set-up was so innovative that all but one of the fair’s judges failed to grasp the significance of the display. Serbinis did not win first, second or third prize. “I got totally stiffed,” he recalls.

Not entirely. The judge who did grasp the significance of the student’s advanced work was Nickerson, who was then an executive with Microsoft Canada. After a quick huddle with other judges, Nickerson conjured up a special innovation award for Serbinis—$1,000 worth of Microsoft software and a summer job with the company.

The award was the beginning of an unusually close mentorship and friendship that continues to this day. Serbinis worked at Microsoft for three summers and, after completing a graduate engineering degree, he moved to California in search of the Silicon Valley start-up dream. But he got his big break in Toronto, helping to found a pioneering cloud-based document storage network called DocSpace. Two years after DocSpace was launched, its founders joined the ranks of tech world millionaires when San Francisco-based Critical Path Inc. agreed to acquire it for $530 million in cash and stock. It was 1999. Serbinis was 26. Looking at his portfolio online, he kept hitting the refresh button to convince himself his fortune was real.

A little more than a year later, the refresh button told him much of his fortune was, in fact, fiction. Critical Path, one of the world’s biggest e-mail and messaging companies, in early 2001 became entangled in an accounting scandal that saw five of its executives settle fraud charges with the Securities and Exchange Commission. The scandal triggered a class-action lawsuit by shareholders and virtually wiped out the stock.

Fleeing the wreckage was not an option for Serbinis. A number of his friends, including Nickerson, had become Critical Path shareholders after the DocSpace acquisition. “I wasn’t prepared to walk away from it,” Serbinis says. The company’s new management team appointed him chief technical officer, which for a struggling company meant he wore many other hats. He describes himself as the “nasty guy” who had to cut hundreds of jobs at the company’s far-flung offices, the salesman who helped land big corporate contracts, and the technology geek who explained to new investors such as Cheung Kong (Holdings) Ltd., a company controlled by Hong Kong’s Li Ka-shing, why Critical Path was a good bet in a rapidly evolving online world. “Mike learned a ton there; it steeled him,” says Nickerson.

The big job meant that Serbinis spent most of his time travelling. The adventure had worn thin by 2005. Recently married and with a child on the way, Serbinis decided it was time to move back to Toronto, close to where both his and his wife’s parents lived. When he asked Nickerson for job suggestions, he got a recommendation that made him laugh out loud: chief information officer at Indigo.

“I said, ‘Whoa, you’ve got to be kidding. Why would I ever do that?’’’ The antique business of selling written words on paper, Serbinis says with a laugh, “wasn’t rocket science.” When Nickerson told him the job came with a rare opportunity to work for a passionate owner-entrepreneur, he reluctantly agreed to meet Reisman.

Over lunch, Serbinis told Indigo’s chief two things. Digital technology would shake her business to the core. And his long-term plan was to run his own company.

“I was thrilled to hear that,” declares Reisman. “Anyone at 33 with that kind of background who doesn’t have that kind of big ambition,” she says with a shrug, “I’m not so interested.”

Getting the job at Indigo proved to be easier than convincing Indigo’s executives—or anyone in the publishing sector—that a digital tsunami would soon overwhelm the world of books, newspapers and magazines. At the time, the market share of books sold through electronic devices was in the low single digits. To Serbinis, that was the wrong data to track. What mattered was the online habits of consumers. They were reading e-mails, documents and news on the Internet. It was only a matter of time before they started reading books online too.

By early 2008, the publishing sector’s indifference to digital reading had become “a very frustrating thing for me,” Serbinis says. So he told Reisman it was time for him to move on. “I said: ‘I love you, I have learned a ton from this world, but I need to go start something.’”

The something was a software start-up that would create an online portal for digital books. Reisman agreed to support the venture, but, still cautious, invested only about $5 million by the end of 2009, its first year. Serbinis, meanwhile, would stay with Indigo, but he could borrow six employees to launch his project, initially called Shortcovers.

The digital service offered anyone with an iPhone, Android phone or BlackBerry an application for downloading book chapters, short stories, blogs and news articles. For 99 cents, at most, people reading on their phones could download a book chapter and share it with friends. If they wanted the whole book, they could download it for between $10 and $20 or follow the traditional route of ordering a hardcover. While other electronic booksellers such as Amazon and Apple only made e-books available on their own devices, Shortcovers was designed as an open platform. It allowed consumers to buy electronic books and build digital libraries that were accessible on a wide variety of smartphones or tablets.

It is likely that Shortcovers would have never expanded beyond the portal stage had Reisman not been a director of the U.S. clothing retailer J.Crew. After a board meeting in early 2010, she returned to Toronto and called Serbinis, Nickerson and half a dozen of her top executives into a meeting. Some of the J.Crew directors had received the new Kindle 2 for Christmas, and they “were all gushing,” she told the team. The high-powered board members were not talking about books, she said, but rather the Kindle itself. “What people are falling in love with is their hardware; that’s the connection.”

It was the moment Serbinis had been waiting for. After years of his warning that the book retailing sector was on the verge of a crisis that he believed would see e-books take over a major chunk of the $33-billion North American consumer and textbook market by 2015, Indigo was finally grappling with the digital demon. Reisman passed around her new Kindle, and while other executives debated the risks, Nickerson rotated the Kindle and played with its small keyboard for about half an hour. “This is not right,” he told the group, and started to sketch. It took him about half an hour to draw his minimalist version of an e-reader. It was smaller than the new Kindle, it did not have a keyboard and needed only a few buttons to operate. “It has to be cheap like borscht, and you have to make it feel like a book,” he said.

When Reisman took her idea to her board, she got a very different reception. “For the love of God, do not go into the hardware business,” said Indigo director and former Microsoft Canada chief Clegg, who had seen too many hardware busts in his career. Gerry Schwartz recalls being less dramatic. “I didn’t agree with her,” says Schwartz, who has an aversion to technology start-ups. He thought his wife was overstating things when she said digital books would wipe out 50% of the traditional bookselling business. More importantly, he feared that Indigo would be crushed in a market already dominated by global heavyweights such as Amazon. If his wife was wrong, “it could have been unbelievably damaging” to Indigo, he says.

Faced with opposition, Reisman dug in, a stance she has the luxury of doing as a majority shareholder with her husband. “I did not quite agree with him. I did not think it was going to sink the mother ship. I thought it was something we had to do.”

Schwartz solved the impasse by encouraging his wife to find other investors to back the digital reader. Perhaps he thought the exercise of trying to raise cash would discourage her. At the very least, she would share the risks with other investors.

But what Schwartz and other critics underestimated was Reisman’s determination and the drive of her in-house network. As the tech blog StartupNorth would later observe, Indigo would soon make: “a big-ass, high-risk pivot.”

*     *     *

Attracting new investors proved to be the easiest part of launching what would become the Kobo reader. Tapping the large Hong Kong investor that had backed him at Critical Path, Serbinis convinced Li Ka-shing’s Cheung Kong (Holdings) to invest in the digital start-up. Reisman turned to her friends at U.S. book retailer Borders and its Australian chain to also buy a stake in the reader.

The tougher challenge was creating a unique Indigo e-reader fast enough to carve out a share of the digital market, which was rapidly being dominated by Indigo’s long-time rival Amazon, Barnes & Noble’s Nook reader and Apple’s new iBooks application for the iPad. (Although Sony was an early e-reader innovator, software and pricing issues have eroded its market share in North America.) At the time, Kobo’s ambitious strategy seemed lunatic. First was the pricing strategy. Indigo initially charged about $149.99 (U.S.) for the Kobo, a steep $120 discount compared with the Kindle 2 price tag. “It was a real make-you-sick-to-your-stomach kind of bet,” says Serbinis. The logic behind the low price was that Kobo would appeal to the average reader rather than affluent types who thought nothing of spending heavily for a costly Kindle. Based on Indigo research, Serbinis calculated that the average avid Canadian reader spent $200 a year on books. If they charged a bit more than half that for a Kobo, loaded it with classic out-of-copyright (hence, free) titles and offered low prices for digital bestsellers, he was convinced that consumers would flock to Indigo’s e-reader.

The second high-risk move was to quickly roll out Kobo readers in Indigo stores—by May, 2010, less than four months after the board approved Reisman’s strategy. The company found a manufacturer in Taiwan that agreed to the tight schedule. But there were problems. Thousands of the new units were shipped with the wrong power cords. And early editions of the Kobo did not have WiFi connections.

The final big bet was Kobo’s global strategy. As Indigo was preparing to introduce Kobos in its stores, Serbinis went back on the global circuit to find partners to promote the Canadian e-reader. Unlike the proprietary e-readers at Amazon and Barnes & Noble, Indigo wanted Kobo to be the e-reader of choice for booksellers and retailers that were not inclined to create their own hardware. “Normally you build something until it is perfected in your home country, then take it elsewhere,” says Serbinis. “Global was where we were always headed,” he says, because it gave Kobo the edge a small Canadian contender needed against mammoth U.S. competitors.

By the late summer of 2011, the strategy was bearing fruit. After a year of unveiling technical enhancements to the reader and global sales partnerships, Kobo had earned a distant third-place ranking behind Amazon and Barnes & Noble in the rapidly growing e-reader market. Although Kobo’s share was minuscule compared with its larger competitors, its rapid growth was astonishing. It had five million users in 100 countries, thanks to strategic alliances with major European booksellers including WH Smith and big-box U.S. retailers such as Walmart and Best Buy. Its simple tablet format, open platform and international connections were so popular that influential technology magazine Wired crowned it the “surprise” tablet winner of 2011.

Behind Kobo’s market success was a grimmer financial story. By the summer of 2011, the start-up was chewing through millions a month, a drain that confirmed Schwartz’s worst fears about technology investments. “They kept talking about burn rate and I said, ‘ding, ding, ding, ding, this is 2000 all over again,’” Schwartz says. The financier had personal reasons for being wary about technology ventures. His stepdaughter Andrea Reisman had raised close to $150 million to launch her online pet supply business, Petopia.com, during the height of the dot-com boom—only to see it virtually wiped out when the bubble burst. Kobo, Schwartz says with a shake of his head, was costing “a lot of money.”

The financial drain came at the same time that Indigo’s traditional book sales and profit margins were shrinking. The quarter that ended last Oct. 1 saw a net loss of $35 million, a huge plunge from a $1.8-million loss a year earlier. Shareholders started to bail from the stock, driving the price to a 52-week low of $6.43 in November, 2011, less than half its peak of $15.53 in October, 2010.

But as the bad news mounted, the Kobo story was attracting attention from an unexpected suitor.

*     *     *

Although little known outside Asia, Rakuten Inc. is Japan’s largest e-commerce company. At age 46, CEO Hiroshi (Mickey) Mikitani personifies a new generation of Japanese entrepreneurs who, contrary to the tradition of doing all dealmaking within keiretsu networks, are making acquisitions globally. Most of the company’s employees have been taught to speak English; in 2010 and 2011, Rakuten went on a global buying spree that included the acquisition of U.S. online retailer Buy.com and Internet retailers in France, Indonesia, Brazil and Germany.

In August, 2011, Mikitani asked for a meeting with Kobo’s owners. By the time they met him in the middle of the month, Reisman, Schwartz and Serbinis knew to expect a takeover offer. Despite Kobo’s financial challenges, Reisman was ambivalent about selling the division that had grown to global acclaim so quickly. She designated her husband to be her negotiator, but she made it clear she wanted the moon for Kobo—$400 million, a price that she today concedes was “unbelievable.”

What the Kobo team didn’t fully realize at the time was that Rakuten had a huge strategic need for a tablet. According to sources, the Japanese company had looked at acquiring other tablets, including Barnes & Noble’s Nook, but had been unable to strike a deal. By the time they came to Toronto, the company’s executive team had become concerned that Amazon might start selling its Kindle globally, threatening Rakuten’s position as one of Asia’s leading online retailers.

It took less than three hours for the Indigo team to strike a deal with Mikitani and his chief negotiator, Yoshihisa Yamada. After opening with a bid of little more than $250 million, the Rakuten team quickly closed in on Reisman’s ambitious asking price. With a handshake, Mikitani agreed to buy Kobo for $375 million.

It was an incredible price for a two-year-old Canadian venture that was likely years away from earning a profit. But what Reisman remembers about the session is that she left with a heavy heart and tears welling in her eyes. Her husband puts it more bluntly. “Heather was unbelievably emotional about it. She didn’t leave with tears in her eyes; she was crying. She was really, really upset.”

It was not long before tears were replaced with sighs of relief. Just as a window may open to new technology entrants quickly, it can slam down sharply. For Kobo, there were a number of finger-crushers. By the fall of 2011, Borders had become such a financial black hole that its creditors decided to liquidate the chain, depriving Kobo of a U.S. distributor. Then Playbook, the Research In Motion tablet that was set to use a Kobo application as its exclusive e-reader, was widely panned—“a dud,” in Reisman’s words.

Without the selling heft of Borders or a home on a mass-market tablet, Rakuten started to get cold feet. To save Reisman’s deal, dutifully called Project Queen by Indigo’s legal advisers at Torys, the book monarch, her husband and Serbinis agreed to meet with Mikitani and Yamada in October.

The opening offer from Mikitani and Yamada when they sat down for talks in the Four Seasons Hotel in Paris was worse than Reisman expected. They wanted to lower the purchase price by $75 million to $300 million. Once again Reisman handed the negotiations to Schwartz, and once again she demanded more than Rakuten offered. “I said ‘Gerry, go back and tell them $315 million or I am literally walking out.’” If Rakuten was offering $300 million, Schwartz knew that $315 million would not likely be a deal killer. A few hours later, the two sides shook hands, and Reisman once again walked away with her terms.

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.

*     *     *

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.”

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