TORONTO - Indigo Books & Music Inc. (TSX:IDG) said Tuesday it has spun off its Shortcovers digital book business to Kobo, a new company controlled by Indigo along with some well-known international partners.
Indigo said late Tuesday that the transaction will see Canada's largest bookstore chain own 58 per cent of Kobo. Other partners include major book retailers in the United States and Australia, and a Hong Kong conglomerate involved in everything from cellphones and real estate to shipbuilding and life sciences.
The Toronto company also said Kobo has secured $16 million in funding including $5 million from Indigo.
Strategic partners include Borders Group Inc., Instant Fame, a subsidiary of industrial, telecom and real estate giant Cheung Kong (Holdings) Ltd. of Hong Kong, and REDGroup Retail Pty Ltd., a major book store chain in Australia.
Shortcovers, launched in February, is a web-based digital download service that sells its products around the world.
"Kobo is an exciting initiative which will put both Indigo and Kobo at the forefront of the new digital reading revolution," Heather Reisman, founder and CEO of Indigo, said in a release after markets closed Tuesday.
"We are very proud of the Kobo team and thrilled with our strategic partners. We also look forward to partnering with Kobo on the delivery of additional eReading devices and offerings in 2010."
Indigo, with 6,600 employees at the end of 2008, sells books under several banners including Indigo Books & Music, Chapters and Coles. Kobo has about two million electronic books in its library.
Michael Serbinis, CEO of Kobo, said Tuesday's deal provides the company with the financial and communications network help needed to expand its products around the world.
"We have assembled a strong syndicate of investors and partners across the channels that are key - retail and mobile distribution. We have a unique opportunity to power the eReading revolution by reaching consumers on any device they choose."
In the latest industry assessment from Forrester Research Inc., electronic book sales are up 176 per cent in 2009 and in 2010 are expected to top $500 million in the U.S. alone. Globally, there's also growing demand from consumers in the UK, France, Germany, Spain, Italy, the Netherlands and Sweden.
Borders Group Inc. (NYSE:BGP) CEO Ron Marshall said the big U.S. book store chain sees the Kobo transaction as a way to cash in on the growing demand for electronic books via the Internet.
"As retailers who welcome thousands to our bookstores each day, Indigo and Borders share a belief that the future of bookselling will include both bricks and mortar and digital options," said Marshall, whose chain employs 25,000 people and operates through the Borders and Waldenbooks chains.
"Indigo has carefully nurtured Shortcovers into a leading eReading service, and today with its evolution into Kobo, Borders is pleased to join with other investors who share Kobo's vision for any book on any device."
Instant Fame is a unit of Cheung Kong (Holdings) Ltd., one of Hong Kong's biggest property developers, with substantial interests and operations in life sciences, telecommunications, shipping, oil and gas and other sectors.
The Chinese company, controlled by billionaire Li Ka-shing and his family, is also the dominant shareholder in Canada's Husky Energy (TSX:HSE), one of this country's major oil and gas companies and gasoline refiners.
In trading on the TSX, Indigo shares fell 16 cents to close at $13.84, a drop of just over one per cent.
