UPDATE 6-Burkle launches proxy battle at 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 Barnes & Noble comment, recasts first three paragraphs)

By Phil Wahba and Jonathan Stempel

NEW YORK, Aug 12 (Reuters) - Billionaire investor Ron Burkle on Thursday launched a proxy battle at Barnes & Noble Inc (BKS.N), after talks over the future of the largest U.S. bookselling chain collapsed and a poison pill to prevent him from taking over was upheld in court.

Burkle began his fight for three board seats, including one for himself, and the ability to boost his ownership stake hours after Barnes & Noble said peace talks had fallen apart.

The acrimony 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 disagreed 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.

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 from their 12-month high one year ago. They closed Thursday 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.

Earlier on Thursday, a Delaware Chancery Court judge ruled against Burkle in upholding Barnes & Noble's poison pill, enacted in November to stop Burkle from getting a controlling stake after he had doubled his stake in a 4-day period.

The judge, Vice Chancellor Leo Strine, said nothing prevented Yucaipa from launching a proxy battle.

"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.

GOOD CHANCES FOR BURKLE

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 a $25-per-share buyout of Barnes & Noble in October 2009, when the company's shares traded higher than they do now. Burkle has said he abandoned the idea as a "waste of time" because of the Riggio family's control.

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.

In his proxy fight, Burkle called for the trigger to be raised to 30 percent.

He also is asking shareholders to elect his three nominees for directors: himself; 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.

Mary Ellen Keating, a Barnes & Noble spokeswoman, said: "Their proxy filing makes clear that Yucaipa wants to gain control without paying a control premium to all shareholders."

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]

Forrester's McQuivey said that Barnes & Noble needs to retool its business to find suitors.

"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."

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, Richard Chang and Carol Bishopric)