E-reader firm Kobo Inc., which was founded by Indigo Books & Music Inc., is being sold to Tokyo-based Rakuten Inc. for $315 million US.
Toronto-based book retailer Indigo made the announcement Tuesday afternoon when it released second-quarter results.
The company did not say why it decided to sell its Kobo unit, which has been the growth part of its overall retail business. However, the global market for ebooks is very competitive and requires investment for continued growth.
Kobo was spun off two years ago to compete in the global ebook sector against industry giant Amazon and a multitude of other companies with devices, software or services.
Kobo has been quickly catching up to Amazon's Kindle with its own reader and distribution system. However, ebook sales are also quickly eating into profits of traditional bookstores like Indigo and its Chapters division.
Indigo said it is expected to receive about $140 million to $150 million from the proceeds of the sale on a fully diluted share basis.
Other Kobo investors include Australian book retailer chain RedGroup Retail and Cheung Kong Holdings, an investment firm controlled by Hong Kong billionaire Li Ka-shing.
Bankrupt U.S. bookstore chain Borders had owned 11 per cent of Kobo when it began liquidating assets in July.
In April, Kobo Inc. closed $50 million in financing aimed at helping it fund its international expansion.
Indigo said in a release both it and Kobo believe that Rakuten is the right partner for Kobo to continue to grow because of its e-commerce strength.
"`We are truly proud of the success that Kobo and Indigo have achieved,"' said Indigo chief executive Heather Reisman.
“Notwithstanding the sale, Indigo will maintain a very strong relationship with Kobo, supporting the products and the services both in store and online and directly benefiting from the growth of the Canadian ereading market.''
Just as Kobo grows, Indigo is being affected by consumers' transition from physical books to digital books.
Indigo announced it lost $40.4 million, or $1.39 per share, during its fiscal second-quarter that ended Oct. 1. That widened a $4.6 million, or seven cents per share, loss during the same quarter a year ago.
A 219 per cent increase in sales from the Kobo division was one of the few bright spots during the quarter.
The Kobo deal, which is subject to regulatory approval under the Investment Canada Act, is expected to close early next year.
Kobo will continue to operate as a stand-alone business. It has more than 5.6 million readers in 100 nations and is available to users of the iPad, iPhone, and BlackBerry, as well as Android devices and on Windows and Macintosh operating systems.
With files from The Canadian Press