UPDATE 4-Barnes & Noble names new CEO in e-books push

Thu Mar 18, 2010 2:28pm EDT

* New CEO Lynch says e-books business "key to our future"

* Lynch says "no potential" combination with Borders

* Promotes COO Klipper to CEO of retail group

* S&P maintains "sell" recommendation

* Shares up 2.3 percent (Adds CEO interview, analyst comment, updates share move)

By Phil Wahba

CHICAGO, March 18 (Reuters) - Barnes & Noble Inc (BKS.N) promoted the executive who spearheaded the development and launch of its Nook electronic reader to be its new chief executive, as the largest specialty U.S. bookseller accelerates its push into digital books.

William Lynch, whose appointment was announced on Thursday and is effective immediately, called Barnes & Noble's e-books business "key to our future" on a conference call.

Lynch, 39, joined Barnes & Noble in February 2009 and oversaw its web business. Last October, he presided over the company's launch of the Nook, which competes with Amazon.com Inc's (AMZN.O) market-leading Kindle and Sony's (6758.T) e-book reader, among other devices.

After several production delays during the fall and into the holiday season, the Nook only became available for in-store orders in February.

Last week, Barnes & Noble announced that users of Apple Inc's APPL.O upcoming iPad device will be able to download books from its bn.com e-bookstore.

Barnes & Noble's founder and Chairman Leonard Riggio explained Lynch's appointment by saying the retailer needed to "pick up the pace" of its shift to e-books as more bookselling gravitates to the web and e-readers. Riggio said that Lynch had quickly put the digital business on the fast track.

The company also promoted Chief Operating Officer Mitchell Klipper to CEO of its retail group.

The management shifts come at a time when Barnes & Noble's comparable sales at its namesake stores continue to decline. They fell 5.5 percent during the holiday quarter, though online sales surged 32 percent. [ID:nN23244634]

Barnes & Noble is also under fire from shareholder Ron Burkle. The billionaire investor has sought to gain a controlling stake in the company and criticized its management structure led by the controlling Riggio family. [ID:nN26192061]

Shares of the company rose 2.3 percent.

NO PHYSICAL BOOK LEFT BEHIND

Lynch stressed that Barnes & Noble would not turn its back on the physical book market, which makes up about 5 percent of overall U.S. book sales.

"When you look at the book market, physical books will continue to be the dominant format that consumers buy -- they value having the object," Lynch told Reuters in an interview, though he said that attachment was weaker for the mass market paperbacks segment.

Lynch also said he did not foresee the need to close stores, saying that the company was winning enough market share from struggling rivals, echoing the position of his predecessor.

Last month, the largest investor in rival Borders Group Inc BGP.N, William Ackman of Pershing Square Capital Management, suggested the No. 2 U.S. specialty bookseller could end up in a booksellers' consolidation with Barnes & Noble. Lynch dismissed the idea, saying, "there is no potential combination."

Standard & Poor's Equity Research analyst Michael Souers maintained his "sell" recommendation on the stock, saying its shares remained expensive, but praised the appointment.

"From a strategic point of view, they are treating the e-reader and e-books as their primary growth engine going forward," Souers told Reuters.

"It begs the question of whether he (Lynch) has sufficient experience given his age, but he's in the best position to drive this change."

The bookstore chain's outgoing CEO, Stephen Riggio, who is also the chairman's brother, will retain the role of vice chairman. The Riggio brothers and other insiders own about 31 percent of the company's shares.

Stephen Riggio said on a call last month that Barnes & Noble could reach the same market share in e-books as it has in physical stores "literally overnight."

In January, investor Burkle, whose investment firm Yucaipa Cos owns 18.7 percent in Barnes & Noble, had asked the board for permission to double his stake in the company without triggering a poison pill provision meant to prevent a hostile takeover. However, the board rejected the request.

By replacing the chairman's brother, Barnes & Noble may be placating other shareholders and directors concerned about the family's hold on the company's management, S&P's Souers said.

Borders also replaced its CEO this winter, when Ron Marshall stepped down after only one year. Its Chief Merchandise Officer Michael Edwards is currently serving as interim CEO. (Additional reporting by Nivedita Bhattacharjee in Bangalore, editing by Michele Gershberg and Dave Zimmerman)

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