UPDATE 3-Burkle sues Barnes & Noble over poison pill

Thu May 6, 2010 2:15pm EDT

* Yucaipa, Burkle claim breach of fiduciary duty by board

* Yucaipa wants court to amend Barnes & Noble poison pill

* Barnes & Noble board calls suit "meritless"

* Yucaipa's stake in Barnes & Noble has risen to 19.62 pct

* Shares down 7.5 percent (Adds detail on shareholder rights plan, updates stock move)

By Ben Klayman

CHICAGO, May 6 (Reuters) - Billionaire investor Ron Burkle's Yucaipa American Management sued bookseller Barnes & Noble Inc (BKS.N) and its directors, saying the board breached its fiduciary duty by upholding a "discriminatory" poison pill provision that would prevent the company from being sold.

The suit was filed in Delaware Chancery Court on Wednesday, according to documents filed by Burkle and Yucaipa with the U.S. Securities and Exchange Commission on Thursday. An attorney for the plaintiff confirmed the lawsuit was filed.

The lawsuit charges the board with breaching its duty to shareholders by having a poison pill without "any legitimate corporate purpose." according to the filing. It seeks unspecified damages.

It said the pill entrenches Chairman Leonard Riggio, who founded the company in 1965, and the incumbent directors in a "self-dealing scheme," and prevents other shareholders from buying the same level of voting power as the Riggio family.

Yucaipa also called the New York company's corporate governance policies "deficient."

The bookseller's board called the lawsuit "meritless" and said Burkle filed it to "advance his own self-serving agenda."

Yucaipa in January asked the board for permission to raise its stake to as much as 37 percent without tripping the pill's provisions. That would have made Burkle the company's largest individual shareholder.

The shareholder rights plan is triggered once a single investor's stake rises above 20 percent. It is designed to prevent hostile takeovers by allowing shareholders to buy more stock at a discount and dilute the buyer's holdings.

Burkle's Yucaipa owns 19.62 percent of the company's stock as of May 5, according to the filing.

The Riggios and company insiders owned about 31 percent of Barnes & Noble shares as of March. Yucaipa said in the lawsuit that the family owns about 32.4 percent of the shares. Including insiders, the total rises to about 38.2 percent, the lawsuit said.

Yucaipa wants shareholders to be able to buy the same number of shares as those held by the Riggios, or to stop the family from using the voting power associated with shares above the 20 percent threshold.

Burkle asked the court to declare that no member of the Riggio family may buy additional shares without triggering the poison pill. He also wants shareholders to be able to collaborate on proxy contests or vote on the poison pill provision without triggering it.

Burkle plans to propose three directors to oppose the management board slate at the company's next annual meeting.

The Barnes & Noble board said it would defend the company against the lawsuit. It said again that it intends to submit the rights plan for shareholder ratification within 12 months of adoption.

Shares of Barnes & Noble were down $1.58, or 7.5 percent, at $19.44 in afternoon trading on the New York Stock Exchange. They have fallen more than 32 percent since hitting their highest level of $28.76 over the past year last August. (Reporting by Ben Klayman. Editing by Dave Zimmerman and Robert MacMillan)

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