A Peek Into the Military-Biblio Complex
The Carlyle Group has invested in a German maker of car ignition systems, owns the manufacturer of the Bradley M2A3 Infantry Fighting Vehicle, and bought a company that specializes in ion exchange technologies for treating radioactive waste. It boasts former Defense Secretary Frank Carlucci as chairman and counts former Secretary of State James A. Baker III as a partner. It controls the largest franchisor of non-cola soft drinks in the world, and though some in publishing may have forgotten this, the privately held Carlyle Group also has a 90% stake in the book wholesaler Baker & Taylor.
Though books take a back seat to missile launchers among Carlyle’s portfolio of 11 defense contractors, there is evidence that the firm’s publishing-related stakes may be on the offensive. Last June, Carlyle invested in the Figaro Group, which owns one of France’s leading daily newspapers, and in December the company took a majority stake in Entertainment Publications, the publisher of upscale coupon books and discount programs.
Closer to home, however, Carlyle joined the Tribune Company in plunking down a $30 million investment last August for VarsityBooks.com, giving it a minority stake in the online textbook discounter. According to company documents, the VarsityBooks hit was part of a broader effort at Carlyle to target Internet-related firms with a special $210 million venture capital fund, which has brought on such diverse companies as Blackboard, an online learning firm that sells course website packages to colleges and universities, LatinForce.Net, an e-commerce portal targeting Hispanics in the US and Latin America, and MuniAuction, a website that has auctioned some $6 billion in bonds, notes, and certificates of deposit.
To date, Carlyle’s eclectic publishing units have little to commend them as an integrated group. But small alliances are shaping up. Baker & Taylor, for example, is the principal supplier for VarsityBooks, and has agreed not to offer direct-to-consumer fulfillment services for VarsityBooks’ competitors. According to documents filed with the SEC, VarsityBooks transmits orders to B&T within twenty minutes of their receipt; books are then slapped in VarsityBooks-branded boxes and shipped direct to the consumer, theoretically arriving within three business days of the order placement. Such a system should soon be getting a workout, given VarsityBooks’ recent alliance with ICQ, the AOL-owned interactive community. The deal gave VarsityBooks placement on ICQ’s student channels and eyeball-time in front of the rest of ICQ’s 50 million users. And while speaking of alliances, let’s not forget that B&T received a chunk of Amazon stock when it supplied the online bookseller with its proprietary database. B&T unloaded a good part of those shares for a tidy $43.7 million.
According to Carlyle Group principal Philip Dolan, Baker & Taylor has served ably as a platform for forays into the publishing market. “We’ve seen an opportunity to leverage the skill sets and the assets of Baker & Taylor to help seed new businesses in the Internet space,” Dolan says. “VarsityBooks was an opportunity where Baker & Taylor had all the systems in place and could be very supportive of this company’s business model.” He declined to speak about further investments in the publishing arena.
Regardless of future plans, Carlyle must be irritated that so much of its investment has ended up in court. Baker & Taylor finally closed a federal lawsuit last July, paying $3 million to settle a case contending that the wholesaler overcharged libraries by more than $100 million, reclassifying trade books as higher-priced nontrade books. After the settlement, however, individual states were free to pursue their own actions against the company; a spokesperson for B&T declined to comment on the issue. Then there’s the suit filed in December by the National Association of College Stores, which alleges that VarsityBooks’ claims of 40% discounts are bogus, since only a few books are sold at the advertised discount. VarsityBooks officials have insisted that the litigation is “completely without merit,” and have asked to have the suit dismissed. A NACS spokesperson said that a judge had not yet made a ruling on the matter.
