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Indigo’s sale of Kobo realizes “a stupendous return,” Reisman says

As many in Canadian publishing’s inner circle primped and primed themselves for the Scotiabank Giller Prize gala, important industry news of another sort broke with the announcement Tuesday evening of Indigo’s decision to sell its majority stake in Kobo, the e-reading company it spun off less than two years ago, to Japanese e-commerce giant Rakuten.

Indigo is expected to realize between $140 and $150 million from the sale, but it raises questions about what the chain’s future will look like without a significant investment in e-reading (not to mention whether the deal will be allowed to go forward under the Department of Canadian Heritage’s foreign-ownership rules).

In a Q&A published today in Canadian Business magazine, Indigo CEO Heather Reisman addresses some of those questions, telling staff writer Jordan Timm that the sale represents “a stupendous return on our investment” in Kobo, especially in a market that is becoming increasingly competitive:

Over the next year, this business [Kobo] will need in excess of $100 million to take it to where this industry is going, and we just cannot play in that league for that amount of capital. That’s first, but it’s also a question of speed. How quickly can you grow this business in order to establish your leadership position? What Rakuten brings is tremendous reach with their huge customer network.

Reisman was, understandably, less specific about how Indigo will use the influx of capital from the sale, but she did say a new acquisition for Indigo is “very possible”:

We must and will fundamentally transform Indigo. The idea of a book retailer as it existed up until the last two years “ that option no longer exists. We did two things two years ago: we made the decision to commit to Kobo, and we also made the decision to fully transform Indigo into a whole new kind of retailer and e-tailer, and we are on that track right now. And there’s no doubt that some of that money will be used in that transformation process, both digitally and physically.

In related news, Indigo’s most recent financial results, released at the same time as the Rakuten announcement, show a relatively flat quarter, with sales up 1.7 per cent to $218.5 million. Revenues at Indigo and Chapters superstores were down 4.3 per cent, while revenues at small-format stores were down 2.9 per cent. By contrast, Kobo sales were up 219 per cent to $40.9 million, though the division operated at a net loss of $10.8 million.