An employee puts books in a bag for a customer at the Amazon Books store in Seattle, Washington, U.S. (Photographer: David Ryder/Bloomberg)

Elliott Takes On Amazon With Purchase of Bookseller Waterstones

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(Bloomberg) -- Paul Singer’s activist hedge fund, best known for its jousts with underperforming corporate titans, is about to start selling books in the U.K.

Elliott Advisors, a unit of Elliott Management Corp., has entered a binding agreement to acquire Waterstones from Alexander Mamut’s Lynwood Investments, the bookseller said in a statement Thursday. Waterstones operates a chain of 283 bookshops in the U.K., Ireland, the Netherlands and Belgium. The terms of the deal weren’t disclosed.

“As the leading physical-book retailer in the U.K., Waterstones is a mainstay of U.K. high streets and has a huge and loyal customer base,” Paul Best, Elliott’s head of European private equity, said in the statement.

The buyout comes during a period of turbulence in the U.K. retail sector. Electronics chain Maplin and Toys “R” Us U.K. both collapsed in February as a combination of rising sourcing and staffing costs, weakening consumer spending and the steady rise of e-commerce combine to punish brick-and-mortar retail chains.

With its foray into book retailing, Elliott is entering a particularly challenged business. Amazon.com Inc. continues to dominate book sales even as it has ventured far afield from its first product category, having helped to kill off former big names such as Borders. Barnes & Noble Inc. persists in the U.S. but endured a 6.4 percent year-over-year drop in holiday-season sales last year.

Profit Returns

Waterstones, founded in 1982 by former WH Smith Plc employee Tim Waterstone, had sales of more than 400 million pounds ($558 million) in the year through April 2017. The chain returned to profit in 2016 for the first time since the financial crisis and made a pretax profit of 18 million pounds last year, according to accounts filed at U.K. Companies House.

Waterstones is the U.K.’s last surviving major bookstore chain. Managing Director James Daunt has strived to make its shops feel distinctive from one another by empowering staff to write reviews of their favorite books, which are displayed next to the titles.

Daunt, who took over in 2011 after setting up his own small chain, Daunt Books, has also re-established Waterstones stores as destinations by adding cafes and event spaces. The five-story outlet on London’s Piccadilly has a restaurant on the top floor.

“Under Daunt, Waterstones has stopped treating books like commodities and runs fewer promotions,” TCC Global analyst Bryan Roberts said by phone. “They have gone back to what they used to do best by focusing on the joy of reading and the value of literature.”

Waterstones isn’t Elliott’s first bet on the U.K. retail sector. The fund bought bankrupt U.K. video-game retailer Game Digital Plc in 2012, before floating it at 200 pence a share in 2014. The company currently trades at 33 pence a share. Elliott tallied a recent U.K. win when Whitbread Plc agreed to spin off its Costa Coffee chain, as the firm and Sachem Head Capital Management LP had urged.

Elliott said it plans to support Waterstones management over the long term. The parties expect to complete the transaction in early May.

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