UPDATE 4-Barnes & Noble to buy College Booksellers, shrs up

* To buy Barnes & Noble College Bookstores for $596 mln

* Sees deal aiding yearly EPS by 30 pct-35 pct

* Getting four-year $1 billion revolving credit facility

* Shares up as much as 20 percent during morning trade (Adds analyst comment)

By Alexandria Sage

SAN FRANCISCO, Aug 10 (Reuters) - Barnes & Noble Inc (BKS.N) plans to buy Barnes & Noble College Booksellers Inc for $596 million, in a deal that would expand the retailer's store base while providing entry into the burgeoning digital textbook book arena.

Barnes & Noble Inc, a chain of more than 750 bookstores, and the college business operated as a private company until Barnes & Noble Inc went public in 1993. The two businesses were separated in 1986 when the company needed to raise money to buy B. Dalton Booksellers, now part of Barnes & Noble Inc.

The acquisition could cement Barnes & Noble's fledgling foothold in the digital textbook arena, which some analysts believe represents the largest opportunity for makers of digital reading devices.

Barnes & Noble said Monday the deal should increase earnings per share by 30 to 35 percent on an annualized basis, based on its full-year earnings per share forecast for $1.10 to $1.40 given in May.

"Barnes & Noble is clearly pursuing a multichannel strategy ... particularly for textbooks, which seem to be a key to greatly expanding the market for e-reader devices," said NPD Group analyst Ross Rubin.

Like other brick-and-mortar booksellers, Barnes & Noble has grappled with a slump in sales in the $25 billion domestic book market in recent years as more readers make their purchases online.

But the textbook industry -- a $5.2 billion business in books from kindergarten to 12th grade and a $5 billion business for higher education, according to Credit Suisse -- is considered a growth opportunity as more schools introduce computers and e-books into the classroom.

Last month, Barnes & Noble unveiled an online store for digital books, touting it as the world's largest, and said it would be the exclusive provider of digital content for the upcoming Plastic Logic e-reader. [ID:nN20146345]

That device is expected to compete with Amazon.com Inc's (AMZN.O) Kindle, readers made by Sony Corp (6758.T) and a handful of other devices, including a rumored tablet-like offering from Apple Inc (AAPL.O) that analysts say could come as early as this fall.

"Combining both businesses on a single branded platform will enable the combined company to cross-promote print and digital offerings to all of our customers," said Barnes & Noble Chairman Leonard Riggio.

Still, analyst Ross cautioned that a strong digital strategy depends on securing publishers' rights. He added that e-readers have yet to offer key elements like color to make many textbooks, such as biology books, more useful to students.

Barnes & Noble's shares climbed by as much as 20 percent in morning trade to their highest level since September, before retreating somewhat. The shares, which are up 71 percent since January, were up 4.6 percent, or $1.11, to $25.15 in late afternoon trade on the New York Stock Exchange.

A special committee plucked from Barnes & Noble's board of directors evaluated the deal, because College Booksellers is owned by Barnes & Noble Chairman Riggio.

"From day one, it will add very predictable and growing revenues and a solid cash flow stream to (Barnes & Noble), thereby lowering our risk profile," said Irene Miller, the committee's chairwoman, on a conference call with analysts.

The value of transaction is $460 million, excluding the cash that College Booksellers is expected to have on hand at the time of closing.

College Booksellers -- which will become a wholly owned subsidiary of the U.S. bookseller -- generated revenue of $1.8 billion in its fiscal year ended in May. Barnes & Noble posted revenue of $5.1 billion in its fiscal year ended in January.

The college business, which operates some 624 stores, serves nearly 4 million students and more than 250,000 faculty members at colleges and universities across the United States.

Buying the college book business would give the retailer control of the Barnes & Noble brand, which it licenses from the college bookstore. That would eliminate annual royalty payments of approximately $6 million, according to Barnes & Noble.

In connection with the acquisition, Barnes & Noble also said it has received commitments for a $1 billion, four-year revolving credit facility that would replace the companies' existing facilities.

The company added that the management team of College Booksellers would remain in place. (Additional reporting by Ian Sherr and Brad Dorfman, editing by Gerald E. McCormick and Steve Orlofsky)