Jana Fund Sees 52% Gain in Value of Barnes & Noble Stake

Jana Partners LLC, Barry Rosenstein’s hedge fund that’s known for pushing for change in the companies it invests in, saw the value of its stake in Barnes & Noble Inc. (BKS) surge 52 percent today after Microsoft Corp. (MSFT) said it will invest $300 million in a new unit with the bookseller.

The bookstore chain rose to $20.75 today in New York trading. Jana Partners said it owned 6.9 million shares in New York-based Barnes & Noble as of April 11, according to a regulatory filing. Today’s increase represents a gain of $49.2 million for the firm from the closing price on April 27. Charles Penner, a spokesman for New York-based Jana Partners, didn’t respond to an e-mail seeking comment.

The subsidiary will combine Barnes & Noble’s Nook digital reader and college businesses. The investment will give Microsoft about 18 percent of the unit, which has yet to be named, Barnes & Noble said in a statement today. The bookseller will own the remainder of the business, which has a valuation of $1.7 billion, according to the statement.

“The question is, why would anyone short that stock?” Rosenstein said, referring to betting against the stock, in an interview with CNBC today. “We figured we had very little downside. We thought there was a very high probability that some sort of strategic transaction like this would occur.”

Photographer: David Paul Morris/Bloomberg

A Barnes & Noble Inc. store in Emeryville, California. Close

A Barnes & Noble Inc. store in Emeryville, California.

Photographer: David Paul Morris/Bloomberg

A Barnes & Noble Inc. store in Emeryville, California.

Nook Growth

Rosenstein said that Barnes & Noble’s share price doesn’t factor in the growth prospects of Nook and that there will be significant cash flow from the company in “many years to come.”

Jana Partners’s 12 percent stake makes it Barnes & Noble’s third-largest shareholder after founder and Chairman Leonard Riggio and Ron Burkle’s Yucaipa Cos., according to data compiled by Bloomberg. The hedge fund said in the filing that it bought 250,000 options to buy shares on April 20 after U.S. markets closed.

Barnes & Noble is working to improve its Nook unit to take advantage of the growing demand for digital books and compete with Apple Inc. and Amazon.com Inc., whose Kindle device is the best-selling e-reader in the U.S.

The venture will develop a Nook application for Windows 8, the newest version of Microsoft’s operating system that’s scheduled for release this year, expanding Barnes & Noble’s digital bookstore to hundreds of millions of customers.

Jana has taken an activist role in publisher McGraw-Hill Cos., proposing a plan last August to break up the company.

To contact the reporter on this story: Saijel Kishan in New York at skishan@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net

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