For sale: Barnes & Noble

Shares are down 33% this year; the book chain's board believes the company is undervalued. Founder Leonard Riggio may try to form an investor group to buy the company.

By Charley Blaine Aug 3, 2010 6:56PM

Barnes & Noble © Saed Hindash/Star Ledger/Corbis  Barnes & Noble (BKS) shares jumped more than 26% after hours today after the world's largest retail bookstore chain put itself on its own sale rack.

 

The move comes in the face of intense competition from electronic bookstores and e-books and a difficult economy.

The company's stock is down a third this year and fell more than 7% to $12.84 ahead of the announcement. 

Just as Barnes & Noble pressured smaller mom-and-pop bookstores, the company has been increasingly pressured by competition from electronic bookstores like Amazon.com (AMZN).

 

Last year brought new competition from the availability of electronic books accessed by readers such as Apple's (AAPL) iPad, Amazon's Kindle and Barnes & Noble's own Nook.

Barnes & Noble shares were up $16.15 after hours. They'd closed down 7.1% at $12.84 in regular trading.

The shares are off 72% from their all-time high of $46.10 on March 17, 2006.


The sale option was contained in an announcement that the company was considering strategic alternatives to boost the stock price. A four-member board committee will evaluate the options. Barnes & Noble


The group includes George Campbell Jr.; William Dillard II; Margaret Monaco and Patricia Higgins.

Founder Leonard Riggio, who controls 28.7% of the stock, wants to form an investor group to take the company private.

That, presumably, would end a messy fight with investor Ron Burkle, who has criticized the company performance in recent years. Burkle's Yucaipa Companies owns 19% of the stock. He'd like to own more, but a poison pill, designed to fend off unwanted suitors, has prevented Burkle from raising his stake to 37%.

Burkle's biggest beef: Barnes & Noble spent $596 million last year to buy Barnes & Noble College Book Sellers, a separate company that Riggio owned. 


As of May 1, Barnes & Noble operated 720 bookstores in 50 states, 637 bookstores on college campuses and a large Web e-commerce site.

Who might want to buy the company? If it went private, as Riggio proposes, it would have to take on significant debt. That would likely result in store closings and layoffs and limited operational flexibility.

 

Its biggest traditional rivals, Borders (BGP) and Books-A-Million (BAAM), are probably not in a position to bid. Borders has a market capitalization of $79.8 million. Books-A-Million's market cap is $103 million.


Barnes & Noble has a market cap of $755 million.

 

Borders shares were up 5.3% after hours to $1.39, presumably because some investors now see it as a takeover candidate. Books-A-Million was unchanged after hours at $6.54.


A possibility could be Amazon.com. That assumes a deal could pass antitrust muster.


But given the stock market's concern with Amazon's slender profit margins, this might be tricky as well.


Riggio, 69, owned a college textbook business when he bought Barnes & Noble, then a venerable New York bookstore, in 1971. He expanded the company and ultimately transformed the it into a national company featuring coffee shops and room for customers to read.

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