UPDATE 5-Burkle launches proxy war for Barnes & Noble

* Burkle's Yucaipa seeks 3 seats including one for himself

* Delaware court upholds "poison pill"

* Judge says Burkle "likely to prevail" in proxy fight

* Shares close up 4 pct (Adds Yucaipa filing, more details from court ruling)

By Phil Wahba and Jonathan Stempel

NEW YORK, Aug 12 (Reuters) - Billionaire investor Ron Burkle on Thursday launched a proxy war to raise his control over Barnes & Noble Inc (BKS.N), after talks with the top U.S. bookselling chain fell apart and a poison pill to prevent him from taking over was upheld in court.

Early in the day, Barnes & Noble said it had been unable to reach an agreement to end a rift with Burkle, which could distract management as it tries to fix the business and make it more attractive to buyers.

Last week, Barnes & Noble put itself up for sale after years of sales declines. It is trying to retool itself and become a leader in the growing market for digital books. [ID:nN11254982]

Leonard Riggio, the New York-based retailer's chairman and largest shareholder with a 28.7 percent stake, is considering a bid for the company as part of a larger group.

But Riggio and Burkle, whose Yucaipa investment firm owns 19.2 percent of Barnes & Noble shares, have locked heads over how the bookseller should be managed.

"The company's poor stock performance is an indictment of Chairman Leonard Riggio's controlling influence on the Board of Directors and reflects a failure of leadership," Burkle said in a filing with the U.S. Securities and Exchange Commission.

In the SEC filing, Burkle claimed that a Barnes & Noble representative told Yucaipa on Wednesday that the board had agreed to a deal, only to rescind the offer on Thursday.

Barnes & Noble shares have fallen 40 percent since a 12-month high exactly a year ago. They closed the day up 4 percent and were unchanged in after-hours trading.

Standard & Poor's said in a research note a battle with Burkle could drive the shares higher in the near term. But other analysts were worried about a distracted management.

"If things are going to be acrimonious, I don't know that you can resolve that -- you just need to focus on the business," said Forrester analyst James McQuivey.

Based on a closing stock price of $15.06 on Thursday, Barnes & Noble has a market capitalization of $886.4 million.

GOOD CHANCES FOR BURKLE

Earlier on Thursday, a judge ruled against Burkle and upheld the poison pill, which was enacted in November to keep Burkle from preventing a controlling stake after he doubled his stake in the bookseller within a 4-day period.

In explaining his decision to uphold the poison pill, Vice Chancellor Leo Strine in Delaware Chancery Court said nothing prevented Yucaipa from launching a proxy battle.

"Indeed, the record indicates that even with the pill in place, Yucaipa not only has a reasonable chance to, but is in fact likely to, prevail in a proxy contest if it runs a credible slate of candidates and articulates a sound business platform," Strine wrote in an 87-page opinion on Thursday.

Burkle and Riggio's frictions go back a long way. In the late 1990s, Riggio invested in a Burkle logistics company that had Barnes & Noble as one of its largest customers, but the investment "did not go well," Strine wrote.

In a statement Yucaipa said it was disappointed with the court's decision and was "reviewing all of its options." Yucaipa had considered pursuing a $25-per-share buyout of Barnes & Noble in October 2009.

In addition to a seat for himself, Burkle wants shareholders to elect Stephen Bollenbach, a former Hilton Hotels Corp CEO and current chairman of KB Home (KBH.N), and Michael McQuary, CEO of Wheego Electric Cars Inc.

A Barnes & Noble spokeswoman declined to comment on Burkle's proposal.

The poison pill lets friendly shareholders buy large amounts of stock at a steep discount should any investor amass a 20 percent stake, making a possible takeover bid costly. Burkle wants the trigger to be raised to 30 percent.

Forrester's McQuivey said that for Barnes & Noble to find suitors, it will need to retool its business.

"They have too many stores, they're too big, there are too many employees," he said. "Rather than looking for a buyer and then cost-cutting, they need to start cost-cutting first."

Pressure on Barnes & Noble grew in June, when it reported a wider quarterly loss as it spent money to develop its Nook electronic reader, which is outgunned by Amazon.com Inc's (AMZN.O) Kindle and Apple Inc's (AAPL.O) iPad.

Sales at Barnes & Noble's namesake stores, which total about 720 in the United States, open at least a year fell 3.1 percent in the latest quarter. [ID:nN28104110]

The case is Yucaipa American Alliance Fund II LP et al v. Riggio et al, Delaware Chancery Court, No. CA5465. (Reporting by Phil Wahba and Jonathan Stempel; additional reporting by Michele Gershberg and Sue Zeidler; Editing by Leslie Gevirtz, John Wallace and Richard Chang)