Liberty Invests in Barnes & Noble After Ending Takeover Bid

Liberty Media Corp., controlled by billionaire John Malone, invested $204 million in Barnes & Noble Inc. (BKS) after dropping its offer to acquire the largest U.S. bookstore chain.

Liberty Media agreed to purchase preferred shares, convertible into 12 million common shares or 17 percent of the company’s stock, at $17 a share, Barnes & Noble said yesterday in a statement. The preferred shares will pay a 7.8 percent annual dividend. Liberty Media, based in Englewood, Colorado, made the only public bid when it offered $17 a share in May for 70 percent of the retailer, valuing the chain at $1 billion.

Barnes & Noble hired Lazard Ltd. in August 2010 to pursue a possible sale after three straight years of profit declines amid increasing competition from discount retailers such as Wal-Mart Stores Inc. (WMT) and digital books. The move followed a public dispute with Ron Burkle, the company’s second-largest shareholder, who pushed for changes.

Liberty’s investment allows Barnes & Noble to spend more on its Nook e-readers to keep up with competitors and gives Malone exposure to a changing industry, Bill Kavaler, a New York-based analyst at Oscar Gruss & Son Inc., said in an interview.

“John Malone likes to buy low-cost calls on interesting potential and ideas and Barnes & Noble is interesting as the only national book chain that’s standing,” Kavaler said. “For $200 million, he’s got a shot at seeing what happens.”

Digital Reader

Barnes & Noble, based in New York, fell $2.11, or 17 percent, to $9.98 at 4 p.m. in New York Stock Exchange composite trading. That marked the largest one-day drop since June 29, 2010. Liberty Capital, the tracking-stock group where Barnes & Noble would have been placed, declined $1.98, or 2.9 percent, to $65.67 in Nasdaq Stock Market trading.

Liberty Media Chief Executive Officer Gregory Maffei and Mark Carleton, a senior vice president, will join the board of Barnes & Noble, according to the statement.

Their appointments “are positive steps towards better governance,” Burkle, founder of Los Angeles-based investment firm Yucaipa Cos., said yesterday in a statement. Yucaipa lost a proxy contest a year ago to replace three Barnes & Noble board members, including founder Leonard Riggio, with a slate led by Burkle after losing a lawsuit to overturn a poison pill anti- takeover defense that capped its stock ownership at 20 percent.

Net Losses

The bookseller plans to continue investing in the Nook and selling e-books as more consumers shift away from printed books. Those investments have come at the expense of profits as the retailer posted a net loss in four of the past five quarters.

While revenue at Barnes & Noble’s online unit surged 50 percent to $858.1 million in fiscal 2011, its more than 700 retail locations have posted one gain in sales at stores open at least a year in the past 14 quarters.

So-called same-store sales dropped 2.9 percent in the fourth quarter, hurt by bankruptcy liquidation sales at Borders Group Inc. in the period. Ann Arbor, Michigan-based Borders filed for bankruptcy in February. Barnes & Noble posted a net loss of $73.9 million, or $1.31 a share, in the fiscal year ended April 30.

Liberty Media holds stakes in the Starz Group media business, Sirius XM Radio Inc. (SIRI) and HSN Inc., the home-shopping retailer.

Barnes & Noble Chairman Riggio founded the company in 1965 with a college bookstore in Manhattan. Six years later, he bought the Barnes & Noble name and its flagship store, beginning a spree of acquisitions, including Doubleday Bookshops. The chain started focusing on superstores, instead of mall sites, in the 1990s, and now has more than 700.

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

To contact the editor responsible for this story: Kevin Orland at korland@bloomberg.net.

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