John Malone’s Barnes & Noble Bid Evokes ‘Buffett-Like’ Liberty Strategy

John Malone’s bid for Barnes & Noble Inc. (BKS) may have little to do with integrating the bookseller into his other businesses. Instead, he may simply see an opportunity to profit by lending support to an out-of-favor company, much like fellow billionaire Warren Buffett, analysts said.

Malone’s Liberty Media Corp. offered to buy Barnes & Noble on May 19 for $17 a share, or 20 percent more than its closing price that day. The New York-based company has been searching for a buyer since last year.

The largest U.S. bookstore chain may not have an obvious benefit to Liberty holdings such as Sirius XM Radio Inc. (SIRI), the Starz media group, and the QVC home-shopping network, said Chris Marangi at Gamco Investors Inc. Still, a Malone buyout could give the bookseller financial and management support so it can build its electronic-reader business and better compete as the book retailing industry shifts online, he said.

“This is Buffett-like,” Marangi said in an interview. “Malone and Liberty CEO Greg Maffei are great partners. They are able to offer a lot of guidance and open doors with financing sources and other strategic partners.”

Liberty said it would put Barnes & Noble into its Liberty Capital, a holding company with stakes in Sirius and Live Nation Entertainment Inc. (LYV), rather than Liberty Interactive, which includes its home-shopping and online businesses. The Englewood, Colorado-based company’s bid is contingent on Leonard Riggio, Barnes & Noble’s chairman, keeping his roughly 30 percent stake and a management role at the company.

“It’s typical Malone,” said Marangi, a portfolio manager at Rye, New York-based Gamco, which has stakes in Liberty Capital and Barnes & Noble. “They’re value buyers.”

Stock Surge

Liberty cited Barnes & Noble’s leading position in bookselling, digital efforts and management expertise in a statement at the time of its bid. Neither Malone nor Maffei responded to calls and e-mails seeking comment.

Barnes & Noble soared $4.22, or 30 percent, to $18.33 yesterday in New York Stock Exchange composite trading, suggesting investors expect a higher bid. Liberty Capital’s Class A shares fell $1.84, or 2.1 percent, to $87.50 in Nasdaq Stock Market trading, and have climbed 40 percent this year.

Like Buffett, who built Omaha, Nebraska-based Berkshire Hathaway Inc. with a mix of businesses picked for their individual merit rather than combined synergies, Malone is increasingly taking advantage of independent, value plays on businesses where he sees opportunity, said Matthew Harrigan, an analyst at Wunderlich Securities in Denver.

“Like with Sirius, I think they are showing some flexibility in terms of businesses they are making investments in,” said Harrigan, who recommends investors buy Liberty Capital shares and doesn’t own them.

Sirius Deal

Malone made his investment in Sirius in February 2009, after the satellite radio company said it may have to file for bankruptcy and its stock had fallen to 10 cents a share. Liberty loaned the New York-based company $530 million and paid $12,500 for a warrant granting it a 40 percent equity stake.

Liberty made about $175 million on the loan, in addition to having the money repaid, Maffei said in December 2009. The company’s preferred stock is convertible into 2.59 billion Sirius shares, worth about $5.7 billion at yesterday’s closing price of $2.22.

While Barnes & Noble put itself up for sale last August and attracted little interest, the recent success of its Nook e- reader may be part of the draw for Liberty, said Sandy Mehta, an analyst at Hong Kong-based Value Investment Principals Ltd.

Chasing Amazon

Barnes & Noble’s investments in developing the Nook and creating an e-book library have fueled revenue gains. Sales at Barnes & Noble stores open at least a year rose 7.3 percent in the quarter ended Jan. 29, the first increase since 2007. Online revenue, where all digital content purchases are recorded, surged 52 percent to $319.4 million last quarter.

The spending has helped Barnes & Noble narrow the gap with market leader Amazon.com Inc. (AMZN), which released its Kindle digital book reader in 2007, two years before the Nook’s debut.

“I think this move is about people accessing books online,” Mehta said. “The bricks and mortar will go by the wayside. But the question is will people pay enough for books online or will they download for free like the music business.”

The February bankruptcy of Ann Arbor, Michigan-based Borders Group Inc. may reduce competition for Barnes & Noble. Borders, which plans to close about one-third of its stores, hasn’t yet found a buyer, people with knowledge of the situation said on May 14.

Board Review

Liberty has retailing and e-commerce businesses, though not in traditional brick-and-mortar outlets like Barnes & Noble’s. Liberty’s e-commerce holdings include Backcountry.com, Celebrate Interactive and Bodybuilding.com. The businesses are part of Liberty Interactive, which also includes QVC.

Company executives are scheduled to appear on May 23 at a special shareholders meeting in Denver, where Liberty investors will vote on a previously announced plan to split off the Liberty Capital and Liberty Starz units.

Barnes & Noble said a board committee will evaluate Liberty’s proposed acquisition, which values the company at about $1 billion and is subject to an accord and shareholder and regulatory approvals.

Malone stands a good chance of completing the deal, though he’s unlikely to pay much more than the current offer, said Marangi.

“The market is expecting either Liberty to increase its bid or another buyer to enter the picture,” he said. “I’m not sure either of those is likely to happen.”

To contact the reporters on this story: Brett Pulley in New York at bpulley@bloomberg.net; Matthew Townsend in New York at mtownsend9@bloomberg.net

To contact the editors responsible for this story: Peter Elstrom in New York at pelstrom@bloomberg.net; Robin Ajello at rajello@bloomberg.net

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