Barnes & Noble Jumps Higher Than Offer by Malone’s Liberty

Barnes & Noble Shares Surge
A Barnes & Noble Inc. bookstore in Washington, D.C. Share prices jumped on Friday, May 20, 2011, on expectations that a higher bid will come for the bookseller. Photographer: Andrew Harrer/Bloomberg

Barnes & Noble Inc. jumped 30 percent in U.S. trading to a higher price than a buyout offer by John Malone’s Liberty Media Corp., suggesting investors are expecting an increased bid.

Liberty Media offered $17 a share, the New York-based bookstore said yesterday in a statement, a 20 percent premium to yesterday’s closing price. The shares advanced $4.22 to $18.33 at 4 p.m. in New York Stock Exchange composite trading.

“There is a solid chance of an improved offer,” Michael Souers, a retail equities analyst with Standard & Poor’s who recommends holding the stock, wrote in a note today.

Barnes & Noble, facing increasing competition as more consumers buy electronic readers such as Inc.’s Kindle, hired Lazard Ltd. last year to explore a sale. Barnes & Noble makes the Nook e-reader, and some potential bidders balked at a purchase because of how long it may take the chain to generate more digital sales, two people said last month.

“It’s making a bet on an industry that is rapidly changing with every download being a vote against Barnes & Noble’s business model for brick-and-mortar stores,” said Brian Sozzi, a retail analyst for Wall Street Strategies in New York. “Every time somebody goes out and buys an iPad or a Kindle, Barnes & Noble’s assets are depreciating.”

A board committee will evaluate the proposal, which values the company at about $1 billion and is subject to an accord and to shareholder and regulatory approvals.

Liberty Media Stakes

Liberty Media, controlled by billionaire Malone, holds stakes in the Starz Group media business, Sirius XM Radio Inc. and HSN Inc., the home-shopping retailer.

Mary Ellen Keating, a spokeswoman for New York-based Barnes & Noble, declined to comment beyond the statement. Courtnee Ulrich, a spokeswoman for Liberty Media, didn’t return a call seeking comment.

Under Liberty’s plan, Barnes & Noble Chairman Leonard Riggio would maintain his about 30 percent equity stake and a management role in the company. Liberty, based in Englewood, Colorado, would own 70 percent, it said in a separate statement. Liberty will contribute about $500 million in cash and finance the rest of its stake, it said.

In its statement, Liberty cited the bookseller’s management team and transition to digital formats as drivers for growth. Liberty Capital, the tracking stock that would include the Barnes & Noble stake, fell $1.84 to $87.50 in Nasdaq trading and had climbed 43 percent this year before today.

Chain’s Growth

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. Barnes & Noble offered to buy about 10 stores, they said.

Riggio’s empire began in 1965 with a college bookstore in Manhattan’s Greenwich Village. In 1971, he bought the Barnes & Noble name and its flagship store in Manhattan. The company expanded through acquisitions, buying B. Dalton Bookseller and Doubleday Bookshops.

The chain shifted from mall-based locations to superstores in the early 1990s. An initial public offering in 1993 provided the capital to expand across the U.S., and by 1996 Barnes & Noble had more than 400 of these locations. The company now has more than 700 superstores and has closed its mall sites.

Nook vs. Kindle

Barnes & Noble added to its retail locations in August 2009 after buying Barnes & Noble College Booksellers Inc. from Riggio for more than $500 million.

More recently, the company’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, which released its Kindle digital book reader in 2007, two years before the Nook’s debut.

While Barnes & Noble put itself up for sale last August and attracted little interest, the success of the Nook in the burgeoning e-book space has garnered attention, said Souers, the S&P analyst.

Kindle Lead

The Kindle has 67 percent of the e-reader market in the U.S., followed by the Nook at 22 percent, according to a February report from Goldman Sachs Group Inc. Amazon generates 58 percent of e-book sales, followed by Barnes & Noble’s 27 percent and Apple at 9 percent.

Being acquired by a larger company such as Liberty would give Barnes & Noble the flexibility to close stores faster, said Peter Wahlstrom, an analyst for Morningstar Investment Services in Chicago. The bookseller would also gain access to capital to invest in its digital unit and advertising, he said.

“They are going up against some pretty big companies in Amazon and Apple with really deep pockets, and if you get into something like a Liberty Media they might be willing to spend more money,” Wahlstrom said. “Barnes & Noble is kind of hamstrung now.”

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