Barnes & Noble’s Riggio’s Investor Suit Settlement OK’d

Barnes & Noble Inc. (BKS) founder Leonard Riggio’s $29 million settlement of investors’ claims that he wrongfully pushed the biggest U.S. bookstore chain to acquire his college-textbook firm won a judge’s approval.

The agreement by Riggio, who is also New York-based Barnes & Noble’s chairman, to give up payments due him as part of the $596 million buyout of the textbook seller was a reasonable resolution of claims the he reaped excessive benefits from the 2009 acquisition, Delaware Chancery Court Judge Leo Strine concluded.

“The only reason this got done was the plaintiffs’ time and effort,” Strine said today at hearing in Wilmington.

Microsoft Corp. (MSFT) agreed this year to invest $300 million in a new Barnes & Noble unit set up to combine its Nook digital reader with the college-textbook business. Microsoft will own about 18 percent of the unit, company officials said.

Barnes & Noble, the second-biggest U.S. seller of electronic books, fell last month after officials said sales of the Nook dropped for a second straight quarter.

The settlement, which will be paid personally by Riggio and won’t be covered by insurance covering Barnes & Noble officers and directors, came less than a week before Strine was slated to hear investors’ claims over the buyout in June.

Promissory Note

Under the terms of the settlement, Riggio will forgo $22.75 million in payments he was to receive under a $150 million promissory note Barnes & Noble issued as part of the purchase of Barnes & Noble College Booksellers Inc.

Riggio also will cut $6.3 million in interest payments due on the note, which matures in 2014, according to court filings outlining the settlement.

Shareholders’ lawyers argued that the board allowed Riggio to dictate terms and timing of the buyout and didn’t force him to seek other offers for the company to justify the price.

Both sides were gearing up for trial in June when they were able to reach the $29 million settlement, Pam Tikellis, a Wilmington-based lawyer for Barnes & Noble shareholders, told Strine today.

“This was a hard-fought case where nothing was easy,” Tikellis said. The lawyer and her colleagues asked Strine in court filings to award them more than $11 million in fees and costs for their work in the Barnes & Noble suit.

$7 Million

The judge cut the total award to $7 million for fees and costs after Barnes & Noble officials objected to the $11 million request, saying the final figure provided “reasonable reward” for the plaintiffs’ efforts.

Because the investors filed their suits as so-called derivative actions, the settlement -- minus legal fees and costs -- will be returned to the company’s coffers rather than to individual shareholders.

Mary Ellen Keating, a Barnes & Noble spokeswoman, declined in an e-mailed statement today to comment on Strine’s approval of the settlement.

Barnes & Noble sells the second-most e-books in the U.S. after Amazon.com Inc. (AMZN) It was the target of a takeover bid by billionaire John Malone’s Liberty Media Corp. (LMCA) last year. Liberty invested $204 million in the company after dropping its bid.

Barnes & Noble also fended off a bid by billionaire investor Ron Burkle to invalidate its anti-takeover defenses and clear the way for a proxy fight over board seats in 2010. Strine concluded the chain’s so-called poison-pill defense didn’t unfairly hamper Burkle’s effort to have his designees elected as directors.

The case is In re Barnes & Noble Stockholder Derivative Litigation, 4813, Delaware Chancery Court (Wilmington).

To contact the reporter on this story: Jef Feeley in Wilmington, Delaware, at jfeeley@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.