Indigo Books & Music Inc. received a privatization offer on Thursday from the company’s controlling shareholder, and experts say the proposed deal would give the struggling retailer needed flexibility to restructure. 

Shares of the Toronto-based bookseller surged Friday on the news of Gerald Schwartz’s proposal to purchase the outstanding Indigo stock he doesn’t already own through his personal holding companies Trilogy Retail Holdings Inc. and Trilogy Investments L.P. 

Schwartz currently owns about 56 per cent of Indigo's issued and outstanding common shares. He is also the spouse of Heather Reisman, Indigo’s chief executive and founder, who owns another 4.6 per cent stake of the retailer through a different holding company.

Robert Levy, president and CEO of Brandspark International, told BNN Bloomberg in a Friday interview that he wasn’t surprised by Schwartz’s offer, given how much the brick-and-mortar retail market has changed in recent years.

“(Indigo) has evolved over the last number of years to become a lifestyle store, so the investments and the pivots they've had to make, ultimately, that's more difficult to do when you're in a public environment quarter by quarter, earnings by earnings,” Levy said.

“I do understand the flexibility that you get when you are a private company and you're really looking to continue to evolve to find that mix and the percentage that's going to be sustainable and create recurring revenue.”

Retail challenges

Levy said the Indigo brand has undergone a significant transformation since its founding in 1996, and is still trying to find its footing amid growing competition online and changing consumer habits.

He pointed to other traditional retailers like Target and Nordstrom who faced challenges in the “volatile” Canadian retail space and eventually left, arguing that there’s no guarantee Indigo will become profitable again.

The company has seen several quarters of financial losses as well as a number of changes to its executive and board of directors over the last year. 

Most recently, the company reported a net loss of $22.4 million in its second quarter, a period when Reisman retired and turned the business over to Peter Ruis, before he left the company abruptly in September, making way for Reisman to return. 

'Too many square feet'

Mark Satov, founder of Satov Consultants, told BNN Bloomberg that he believes the lifestyle brand is still a good play for Indigo, but said the company should consider scaling back on the number and the size of its stores.

“I think what they probably need to do and should have done earlier is pare back the store sizes,” he said in a Friday interview.

“I go in there at Christmas and I can get all types of gifts for everybody, but the rest of the year I think they have dead square feet, so I think they would be very successful with fewer stores that are smaller.”

Satov shared Levy’s sentiment that Indigo would be more able to make bigger restructuring decisions as a private company, adding that it would be easier to make “bold moves.”

“They probably want to make some moves that they would rather not be done in the public eye because the public markets tend to punish you for restructuring at times if they don't like it.”

Board evaluating Schwartz’s proposal

On Friday, Indigo’s board confirmed that it received Schwartz’s proposal, which they called “unsolicited.”

The proposal would see Schwartz’s Trilogy companies purchase all outstanding Indigo shares for $2.25 each – a premium of more than 50 per cent from Thursday’s closing price. Indigo stock traded near $20 per share in 2018.

 “The board will review the proposal to determine the course of action that it believes is in the best interest of the company,” the board said in a statement.

“The board has established a special committee of independent directors that will evaluate the proposal and any viable alternatives that may be available to the company and make recommendations to the board.”

Trilogy said in a Thursday statement that the privatization proposal is the “only transaction” it’s prepared to pursue, and is not interested in selling any of its own shares.

Indigo’s nine-member board of directors includes Schwartz and Reisman, as well as their daughter, Andrea Johnson.

With files from The Canadian Press