No. 1 Bookseller Seen Needing Amazon Takeover: Corporate Brazil

Saraiva SA Livreiros Editores (SLED4), Brazil’s largest bookseller, is counting on products from tablets to textbooks to fuel growth, spurring takeover talks with Amazon.com Inc.

Amazon, the world’s largest seller of goods through the Internet, is in talks to buy Sao Paulo-based Saraiva, said a person with direct knowledge of the matter last week, who asked not to be identified because the discussions aren’t public. Saraiva said in a regulatory filing Oct. 18 that it’s always “willing to look at” business opportunities, and that there’s no deal to report.

Saraiva is attracting Amazon while seeking to transform itself into an online retailer with a network of brick-and- mortar outlets including 48 megastores and five iTown locations to sell Apple Inc. (AAPL) products. Rising incomes and better education in Brazil, the world’s largest emerging market after China, are fueling demand for books, electronics and entertainment, Saraiva Chief Financial Officer Joao Luis Ramos Hopp said.

“Amazon is a well-known brand (BRND) in the U.S. and Europe, but Latin America is an opportunity that has not been grasped yet,” Kerry Rice, an analyst at Needham & Co., said by telephone from New York. “Brazil would be a good kickoff, given the size of the country’s market.”

Shares of the Brazilian retailer have gained 30 percent in Sao Paulo since Aug. 31, giving it a market value of 700.6 million reais ($345.6 million) on Oct. 19. Saraiva trades at 7.1 times its estimated 2013 earnings, compared with a ratio of 62 for Amazon. (AMZN)

Saraiva advanced 0.4 percent to 26.89 reais at 12:16 p.m. in Sao Paulo, while the Bovespa index rose 0.3 percent.

No Deal Yet

While Hopp declined to comment on whether the bookseller is in talks with Amazon, he said Saraiva’s publishing unit is negotiating to sell its products through Amazon.

“Amazon has been around in Brazil for a while,” Hopp said in an interview at the company’s headquarters in Sao Paulo on Oct. 16. “Amazon is present and saying, ‘I want to sell my e- book in Brazil’.”

Mary Osako, an Amazon spokeswoman, declined to comment.

Livraria Cultura, the second-biggest bookstore chain, is also expanding into the market for digital content and signed an exclusivity agreement with Kobo, a provider of e-readers and e- books, to make more than 3 million titles available. Booksellers are more concerned with the decline of readers in Brazil than increased competition, Cultura Chairman Pedro Herz said.

Going ‘Backwards’

The number of people who said they read books, newspapers or magazines in Brazil fell to 88.2 million in 2011, from 95.6 million in 2007, according to a research report released in March by Instituto Pro-Livro, a non-profit organization that aims to stimulate readership.

“Education is moving backwards,” Herz said. “Most people don’t have the habit of reading, and that’s worrisome.”

Saraiva now gets 56 percent of its retail revenue from products other than books, up from 48 percent five years ago, Hopp said. It’s the second-biggest seller of Apple’s iPad and the third-largest seller of Samsung Electronics Co. (005930)’s Galaxy tablets in Brazil.

“We don’t see the bookstore as a temple of consumption for intellectuals,” Marcilio Pousada, the head of Saraiva’s bookstore unit, said in an interview on Oct. 16. “Everything related to human knowledge -- entertainment and leisure -- we are in.”

‘Magic of Amazon’

Both Amazon and Saraiva have also said they want a bigger presence in the market for textbooks. Saraiva’s publishing arm is the biggest provider of textbooks in Brazil, Hopp said. Seattle-based Amazon in August started offering electronic- textbook rentals to draw more young people to its Kindle electronic reader.

“This acquisition would be a way for Amazon to enter the broad retail sector in Brazil,” Carlos Kirjner, an analyst at Sanford C. Bernstein & Co., said by phone from New York. “The magic of Amazon’s business model is that it creates loyalty among customers with books, but in the end sells to these clients all kinds of stuff.”

To contact the reporters on this story: Fabiola Moura in Sao Paulo at fdemoura@bloomberg.net; Denyse Godoy in Sao Paulo at dgodoy2@bloomberg.net

To contact the editors responsible for this story: Jessica Brice at jbrice1@bloomberg.net; Helder Marinho at hmarinho@bloomberg.net

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