Home >Industry >Retail >Barnes and Noble chairman plans offer for bookstore business

Barnes and Noble Inc. said its chairman, Leonard Riggio, plans to make an offer for the company’s bookstores, a deal that would result in splitting them off from the company’s Nook device and e-book business, which has been losing ground to Amazon.com Inc.

Riggio, who bought the original Barnes and Noble store in Manhattan in the 1970s and used it to launch a national chain of big-box stores, would primarily offer cash and assume some of Barnes and Noble’s debts, according to a filing on Monday with the Securities and Exchange Commission.

The offer would not include Barnes and Noble’s Nook e-books and device business or its college bookstore chain, which are part of a separate unit created last year called Nook Media.

Barnes and Noble at the time said it was looking at strategic alternatives for Nook Media, including a potential spin-off, but has not given any updates since then.

Riggio, who owns nearly 30% of Barnes and Noble, did not disclose how much he would offer for the stores. Analysts said his success would hinge on satisfying John Malone’s Liberty Interactive Corp., which owns preferred shares that are convertible into a 17% stake.

“This would allow the focus to go back to retail," Morningstar analyst Peter Wahlstrom told Reuters. “Nook is definitely a distraction—it sucks out all the profits."

The 2011 bankruptcy of Borders Group gave Barnes and Noble a short-lived reprieve from industrywide declines in book sales.

But during the 2012 holiday season, sales of books and other non-Nook products at stores open at least 15 months fell 3.1% and fewer people set foot in its stores.

Still, the retail business is attractive because it generates plentiful cash, much of which has been diverted since 2009 to develop the Nook devices and market them.

John Malone, wild card

Barnes and Noble last month said it may close as many as a third of the nearly 700 superstores it operates in the US in the next decade. Most of its leases are short-term, making it easy for the chain to scale down as needed.

Barnes and Noble had put itself up for sale in 2010, but its only offer came from Liberty Interactive. Liberty, however, backed down from an initial $1 billion bid and instead bought $204 million in preferred shares convertible for $17 apiece.

“The wildcard here is Liberty. They like Riggio but they have different interests," Maxim Group analyst John Tinker said.

Founder-buyer

Riggio joins the growing ranks of executives or former executives trying to buy the companies they founded, including Dell Inc. chief executive Michael Dell and Best Buy Inc. founder Richard Schulze.

Riggio in 2010 won a bitter fight for control of Barnes and Noble with investor Ron Burkle, showing how much he sees the chain as his “baby," Morningstar’s Wahlstrom said.

Riggio, widely believed to be a billionaire, would have little difficult pulling off a deal, analysts said. In addition to his stake in Barnes and Noble, he made a windfall when the company spun off GameStop Corp. in 2004.

He also sold Barnes and Noble the college bookstore chain, which he and his wife owned, for $514 million in 2009.

Janney Capital Markets, in a note to clients, said mounting an offer would not be “difficult" for Riggio.

Barnes and Noble said it had set up a committee made up of three independent directors to evaluate Riggio’s proposal.

Evercore Partners will serve as financial adviser to the company and Paul, Weiss, Rifkind, Wharton and Garrison LLP will be legal advisers, the company said.

The trouble with Nook

Microsoft Inc. took a 16.6% stake in Nook in 2012, and last month Pearson Plc bought 5%t, valuing the unit at about $1.8 billion. Barnes and Noble owns the remaining 78.2%.

Barnes and Noble launched the first edition of its Nook e-reader in 2009 to compete with Amazon’s market-leading Kindle. Nook caught on with readers at first, helping Barnes and Noble garner as much as 27% of the U.S. e-books market.

But its popularity weakened in 2012 as Barnes and Noble branched out beyond its e-readers and into tablets, where it faced formidable rivals such as Apple Inc. and Google Inc.

Earlier this month, Barnes and Noble said the loss from the Nook business would probably be bigger than expected in fiscal 2013 ending 28 April and that sales for the year would fall short of the $3 billion it had forecast.

Revenue from Nook businesses fell 12.6% from a year earlier in the nine weeks ended 29 December, even as Amazon reported rising sales of Kindles and e-books, leading many to wonder about Nook’s long term prospects.

Barnes and Noble is scheduled to report third-quarter results on Thursday. REUTERS

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