Burkle Wins ISS Support in Bid for Barnes & Noble Seats Before Proxy Vote

Ron Burkle’s Yucaipa Cos. received a boost in its bid to gain seats on Barnes & Noble Inc.’s board after Institutional Shareholder Services said investors should vote for its three nominees next week.

ISS sided with Yucaipa, the second-largest shareholder, after two proxy adviser firms recommended last week to vote for Barnes & Noble’s nominees, which include the re-appointment of chairman and largest shareholder Leonard Riggio. Investors should also support a Yucaipa amendment to increase the maximum shares allowed under the company’s takeover defense, ISS said.

“Dissident nominee Burkle has invested a significant amount of his own wealth buying his stake in the company, and for that reason alone might be perceived as more aligned with the interests of outside shareholders than any of the incumbent directors,” ISS said today in a report to clients.

Barnes & Noble, the largest U.S. bookstore chain, and Yucaipa have sent press releases and letters to shareholders to make their case since Los Angeles-based Yucaipa filed a proxy on Aug. 12, a few hours after losing a lawsuit to overturn the so- called poison-pill provision. The proxy vote will take place Sept. 28 in New York.

Barnes & Noble, based in New York, rose 31 cents, or 2 percent, to $16.19 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have dropped 15 percent this year.

Barnes & Noble Support

ISS also recommended shareholders vote to increase the amount of shares that can be owned under the pill to 30 percent from 20 percent.

“While ISS has a track record of supporting dissidents, we believe its analysis is flawed and not in the best interest of our shareholders,” Barnes & Noble said in a statement.

Yucaipa, in a separate statement, reiterated that it deems Barnes & Noble “significantly undervalued” and said that “the right changes can unlock significant value for the benefit of all stockholders.”

Glass Lewis & Co. and Egan-Jones Ratings Co. backed the company last week and advised voting against amending the pill. Both firms said the position of Aletheia Research and Management Inc. as the company’s third-largest shareholder after Riggio and Burkle, with 15 percent, was a reason for siding with the retailer. If the threshold is increased to 30 percent, Aletheia could form a group with Yucaipa and buy Barnes & Noble without paying a premium, the companies said.

‘No Clear Path’

“This doesn’t clear anything up,” Michael Souers, an analyst for Standard & Poor’s in New York who advises holding Barnes & Noble shares, said of ISS’s recommendation. “If these proxy adviser firms had come out and backed one side or the other, it might have swayed investors, but the fact that it’s split is telling them there is no clear path.”

Peter Eichler, founder of Santa Monica, California-based Aletheia, testified in a deposition for the trial over the pill that he met with Burkle twice last year. The Barnes & Noble board was concerned about Aletheia collaborating with Yucaipa before it enacted the pill, court documents show.

Burkle started to buy Barnes & Noble shares in November 2008 and by January 2009 owned 8.3 percent of the company. After Barnes & Noble purchased Barnes & Noble College Booksellers Inc. from Riggio for $514 million in August, Burkle criticized the deal in a letter to Riggio.

Burkle owned 19 percent of Barnes & Noble as of May 5. The pill exempted Riggio, who held 28 percent as of August.

To contact the reporter on this story: Matt Townsend in New York at mtownsend9@bloomberg.net

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