Barnes & Noble Mulls Sale Under Pressure From Activist Burkle

By Duane D. Stanford
(c) 2010 Bloomberg News
Wednesday, August 4, 2010; 12:00 AM

Barnes & Noble Inc., under pressure from activist investor Ron Burkle, put itself up for sale as a shift to digital books leads to losses at the biggest U.S. bookstore chain. The stock jumped in late trading yesterday.

The board appointed a committee to evaluate strategic options, including a sale, Barnes & Noble said in a statement yesterday. Chairman Leonard Riggio, the company's founder and biggest shareholder, told the board that he may participate in an investor group to acquire the company.

Burkle's Yucaipa Cos. sued Barnes & Noble in May and is seeking to invalidate the company's poison-pill defense against takeovers so he can boost his stake in the bookseller. In July court testimony, Riggio said he has a "strong preference" for being Barnes & Noble's largest holder. Riggio owns about 30 percent, while Burkle holds a 19 percent stake.

Lazard will serve as financial adviser to the Barnes & Noble special committee. The bookseller has a market value of $755.7 million and had $260.4 million in long-term debt as of May 1.

Barnes & Noble surged 25 percent to $16.05 from a close of $12.84 on the New York Stock Exchange yesterday. In regular composite trading, the stock had dropped 33 percent this year.

Yucaipa said in court filings that directors had a "self- dealing scheme" designed to entrench the Riggio family's dominance of the company. The parties are awaiting a Delaware judge's decision on whether Barnes & Noble's corporate anti- takeover defense is flawed and unfairly bars suitors from starting proxy fights to win control of the bookseller.

Stephen Riggio, Leonard Riggio's brother who is the company vice chairman, owns 4.1 percent of Barnes & Noble, based on a regulatory filing.

Burkle didn't immediately respond to calls for comment. He said in court papers he is buying stock to enhance his ability to put candidates on the board and improve company operations.

Barnes & Noble has been trying to offset declining sales at its bookstores by investing in its digital book reader, the Nook, and applications to sell e-books. The company said in June that its market share of digital books in the U.S. grew to 20 percent from 2 percent since releasing the Nook in November.

The company in June also forecast a possible loss of as much as 40 cents a share for the fiscal year because of a $140 million investment in its digital book unit.

"The only thing that's going to really goose the stock price in the long term is to actually sell one book at a time to one person at a time, over and over and over, and actually make a renewed commitment to book-selling practices that work," said Michael Norris, a senior analyst for Simba Information Inc., a Stamford, Connecticut-based research consultant.

The Nook is up against devices from Inc. and Apple Inc. Last month Amazon introduced two versions of its Kindle e-reader, including a $139 model that works with Wi-Fi and one for $189 that uses 3G mobile technology and Wi-Fi to download books. Apple's iPad also features an e-reader and connects to a book store.

Barnes & Noble anticipates U.S. sales of trade books will increase 17 percent to $27 billion by 2014, and digital titles will comprise more than 20 percent of that, up from less than 5 percent this year. U.S. digital book sales tripled last year to $313.2 million, as the total market declined 1.8 percent to $23.9 billion.

© 2010