FIGHTING a hostile takeover - Chapters Inc

Chief Executive, The, August, 2001 by Larry Stevenson

AS CANADA'S BOOK-selling king, Larry Stevenson over-saw an expanding empire. The CEO of Chapters Inc. already operated more than 300 stores nationwide in 1998 when he began selling over the Internet as well. A year later, Stevenson launched a new wholesale division. Chapters, with its commanding 30 percent market share, had competitors on the run.

But in November 2000, the scenario quickly shifted: Suddenly, it was Chapters, which had sales of $455 million, that was being chased. A group that included rival Indigo Books & Music Inc. had launched a hostile bid.

Stevenson was familiar with such maneuvers. Before taking the top job at Chapters, he'd worked as a consultant for Bain & Co., helping executives acquire other companies. Still, he says, "it's a little different when you're in the eye of the storm."

Even so, Stevenson felt confident he could defend Chapters. His lawyers insisted the takeover bid would never win approval from Canadian antitrust regulators. He was certain he would find a "white knight" who would allow him to retain control of the company.

What the 45-year-old executive hadn't expected was how time-consuming that search would become. After the hostile bid arrived, Stevenson spent months looking for a backer with deep enough pockets to stave off the takeover. "There were just never enough hours," he says of the tumultuous period. "If any potential white knight wanted to see you-anywhere--you got on a plane."

With the company's future at stake, other management tasks fell to the side. Stevenson acknowledges that he had "nothing to do with the stores" during that time. With his attention elsewhere, the hostile bid also proved unsettling for the retail chain's 6,000 employees. "Their concern," says Stevenson, "was, 'will I have a job when the merger goes through?

In the end, Stevenson found his would-be rescuer m a Canadian electronics retailer. But that company's bid ultimately fell short of the aggressive offer from Trilogy Retail Enterprises LP, a private company controlled by Indigo's CEO and her husband. Ousted by the new board, Stevenson plans to spend the next year studying in France--and no doubt mulling over lessons from the recent booksellers' war.

One that's already clear to him: Never take anything for granted in the midst of such uncertainty. Despite his attorneys' assurances to the contrary, Canadian regulators in June gave their blessing to a Chapters-Indigo merger. "If advisors say it's not possible," Stevenson says, "it is possible."