First up is Liberty Media’s proposed all-cash buyout of Barnes and Noble (BKS). Brick-and-mortar booksellers are are a declining business model; just ask Borders (BGP) about its prospects. Liberty Media must see other advantages here as the WSJ has duly noted. One desirable asset Barnes and Noble possesses in spades is choice retail space that can be repurposed for uses beyond books. If John Malone needs Liberty Media to go into debt to close this deal, there’s no time like the present before rates inevitably rise.
Speaking of debt and interest rates, we also have Chrysler LLC’s proposed payback of government loans. The problem here is that they’re paying it back with money obtained from other debt issues. Exchanging debt makes sense if the debtor gets a better term structure of interest rates. Uncle Sam’s ZIRP policy makes him the cheapest lender in the country, so going to the capital markets to raise money at higher interest rates makes little sense unless this somehow improves the firm’s enterprise value.
Puzzling moves like this make me glad I don’t work in corporate treasury offices that have to justify these kinds of decisions on behalf of top management.
Full disclosure: No position in BKS, BGP, or Chrysler LLC.