Kobo Acquired By Japanese E-Commerce Firm Rakuten For $315 Million

E-bookseller and e-reader company Kobo is being acquired by Japanese e-commerce company Rakuten for $315 million. The company says it will continue to expand in the U.S., while growing its international market share through Rakuten. Look for upcoming partnerships with fellow Rakuten-owned company Buy.com, as well as a Japanese-language Kobo e-reader sometime next year.
Kobo, which was founded by Canadian bookseller and retailer Indigo in December 2009, will now be a wholly owned subsidiary of Rakuten and will continue to operate as a standalone company under CEO Michael Serbinis in Toronto. Indigo, Kobo’s primary shareholder, expects to receive $140 to $150 million from the sale–a return of “over 300 percent,” said Indigo CEO Heather Reisman.
Rakuten is Japan’s leading e-commerce site and has acquired a string of other such sites in recent months. The company’s “current acquisitions strategy smacks more of Google (NSDQ: GOOG) than of any Japanese firm,” writes Japense consumer market research company Japan Consuming. Last year, Rakuten bought U.S. site Buy.com for $250 million and French site PriceMinister for €200 million, and launched a Chinese e-commerce site in partnership with Baidu (NSDQ: BIDU). Rakuten bought Brazilian e-commerce site Ikeda this June, and the UK’s Play.com in September. In a bit of news that could mean a lot or nothing, our reader Gary Price, who runs INFOdocket.com, point out that Rakuten also owns marketing firm LinkShare, which exclusively runs Barnes & Noble’s affiliate marketing network. “They are kind of standalone,” said Rakuten CEO Hiroshi Mikitani told me this evening. “They provide the affiliate marketing service to Barnes & Noble (NYSE: BKS) but it does not mean we are going to have a strategic relationship between Barnes & Noble and Kobo.”
Rakuten’s acquisition of Kobo marks a new move into content. “It’s obvious that combining content with e-commerce has become extremely crucial,” said the company’s CEO, Hiroshi Mikitani, in the call. “We will enhance our e-book business in Asia through Kobo and go global as fast as we can.”
The Japanese e-book market is a couple of years behind that in the U.S., Mikitani told me. Many consumers read manga on their mobile phones, but dedicated e-readers “aren’t so popular yet. But it’s coming.” The obvious question is when Kobo plans to introduce a Japanese-language Kobo e-reader. Mikitani said that Rakuten is waiting for Japanese publishers to abandon the proprietary XMDF file format in favor of EPUB3, which supports top-to-bottom reading on screens. Publishing Perspectives notes today that “the official release of EPUB3 was reported by one Japanese newspaper as the ‘landing of global standards in making e-books’ that will bring foreign rivals to the publishing industry.” Mikitani thinks change could come soon: Assuming that EPUB3 gets the fine-tuning it needs to better support Japanese characters in coming months, “we would like to launch [a device] sometime early next year.”
“Getting e-readers into the [Japanese] market is a near-term event,” Kobo’s Serbinis agreed. “EPUB3 is key to Japanese local content, but of course there’s a big appetite for international content, too.”
Serbinis said that “working with Rakuten opens up new opportunities for social commerce.” I asked whether Kobo is considering expanding into areas beyond books, and it seems that is at least a possibility: “Our first objective is to bring e-reading to more people and more places around the world,” Serbinis said, but “Kobo was the first e-book partner that Facebook announced as part of its new Open Graph. We’ve really built our Reading Life platform…which leads to a number of opportunities for tying the experience of social around content and commerce. That’s all I’ll say for now.”
Serbinis said Kobo’s market share in the U.S. e-book market is “in the high single digits to low double digits,” unchanged since the spring, but the company holds over 50 percent of the Canadian e-book market. Rakuten’s acquisition does not signify a move away from e-books in the U.S., Serbinis stressed, and described the Rakuten-owned Buy.com as “our close sister company and a close partner of ours. We plan to work with [Buy.com CEO] Neel Grover to grow our share in the U.S.” In our follow-up call, he said “getting Kobo readers available on Buy.com is an obvious win-win, and we’ll be exploring numerous other opportunities.”
Prior to Borders’ liquidation, the retailer was a partner for Kobo and a minority stakeholder in the company, with a share of about 11 percent.
Borders’ liquidation had nothing to do with the acquisition, Reisman said in a call following the announcement. “Kobo was not for sale. We had not hired any banker and not looked to sell the company,” Reisman said. “Kobo was evolving exactly on the path we wanted.” While Reisman stressed that “physical books are not going to disappear” from Indigo’s shelves, it appears that Indigo may be moving away from books somewhat and Kobo’s acquisition is “a great decision at the right time”: “It is absolutely essential that we transform the vision of our business,” Reisman said. Indigo is entering its “third chapter” and will be selling “products consistent with the lifestyle of our customers.”
Full release on page 2.

TOKYO and TORONTO, November 8/9, 2011 — Rakuten, Inc. and Kobo Inc. today announced that they have entered into a definitive agreement under which Rakuten intends to acquire 100% of total issued and outstanding shares of Kobo for US$315 million in cash.
Kobo was founded by and spun out of Indigo, the largest book, gift and specialty toy retailer in Canada, in December, 2009. Since that time, Kobo has become a fierce competitor in the eBook marketplace, with a family of innovative eReaders, a wide range of eReading apps, one of the largest eBook catalogues, an innovative social platform and retail partners around the globe.
The acquisition marks a major step forward for Rakuten, one of the world’s top 3 e-commerce companies by revenue, as it continues to expand its unique B2B2C borderless e-commerce business globally, by adding an ecosystem to provide downloadable media products to consumers, starting with eBooks.
Hiroshi Mikitani, Chairman and CEO of Rakuten, commented on the acquisition, “We are very excited about this next step. Kobo provides one of the world’s most communal eBook reading experiences with its innovative integration of social media, such as Facebook and Twitter; while Rakuten offers Kobo unparalleled opportunities to extend its reach through some of the world’s largest regional e-commerce companies, including Buy.com in the US, Tradoria in Germany, Rakuten Brazil, Rakuten Taiwan, Lekutian in China, TARAD in Thailand, and Rakuten Belanja Online in Indonesia, and of course, Rakuten Ichiba in Japan.”
“From a business and cultural perspective this is a perfect match,” commented Kobo CEO Michael Serbinis. “We share a common vision of creating a content experience that is both global and social. Rakuten is already one of the world’s largest e-commerce platforms, while Kobo is the most social eBook service on the market and one of the world’s largest eBook stores with over 2.5 million titles. This transaction will greatly strengthen our position in our current markets and allow us to diversify quickly into other countries and e-commerce categories.”
Upon closing the acquisition, Kobo will continue to maintain its headquarters, management team and employees based in Toronto, Ontario.
The global eBook market is one of the fastest growing segments of the consumer technology industry, with a compound annual growth rate of 36% through 2015*. The global content market size is also expected to grow dramatically to reach approximately US$10.6 billion per year by 2015 (estimates exclude China).
*Sources: Based on forecasts by IDC, Yankee, BCG analysis & NRI for Japan 1USD= 80JPY
The transaction is subject to customary closing conditions, including approval by Canadian regulatory authorities in accordance with the Investment Canada Act and is expected to close in Q1 2012.
About Kobo Inc. (www.kobo.com)
Kobo is a global eReading service with more than 2.5 million eBooks, magazines and newspapers – one of the largest eReading catalogues in the world. Read Freely – Kobo believes consumers should have the freedom to read any book on any device and has attracted millions of readers from over 100 countries across the globe. Kobo has top ranked eReading applications for iPad, iPhone, BlackBerry, Android, Windows and MacOS, and is the eReading application of choice for leading tablet OEMs. Kobo eReaders, including the Kobo Touch and the newly launched Kobo Vox are available at leading retailers, including Indigo, Wal-Mart (NYSE: WMT), Best Buy, Target, Future Shop, WHSmith, FNAC, Collins Booksellers and Whitcoull’s. Kobo’s innovative Reading Life is an industry-first comprehensive social eReading experience – Kobo users can earn awards simply for time spent reading and encouraging others. Kobo is backed by majority shareholder Indigo Books & Music Inc., Cheung Kong Holdings, and institutional investors.
About Rakuten
Rakuten, Inc., is one of the world’s leading Internet service companies, providing a variety of consumer and business-focused services including e-commerce, travel, banking, securities, credit card, e-money, portal & media, online marketing and professional sports. Rakuten is expanding globally and currently has operations throughout Asia, Western Europe, and the Americas. Founded in 1997, Rakuten is headquartered in Tokyo, with over 10,000 employees worldwide. For more information, visit http://global.rakuten.com/group.