UPDATE 4-Barnes & Noble says Burkle unqualified for board

Wed Aug 25, 2010 3:23pm EDT

* Says he aims for control without paying a premium

* Says Burkle and his candidates not qualified

* Company says Burkle may team up with investor Aletheia

* Yucaipa says not seeking control of Barnes & Noble

* Shares up 4.4 percent (Adds Yucaipa statement, updates share activity)

By Phil Wahba

NEW YORK, Aug 25 (Reuters) - Barnes & Noble Co (BKS.N) said activist investor Ronald Burkle was unqualified to sit on its board and accused the billionaire of trying to take over the bookseller without rewarding shareholders.

Burkle launched a proxy battle to put three directors on Barnes & Noble's board shortly after the leading U.S. bookstore chain put itself up for sale. The company's chairman and top shareholder Leonard Riggio is trying to organize a bid.

"We believe Los Angeles-based investor Ronald Burkle is trying to take control of Barnes & Noble without paying you the premium you deserve for your shares," the company's board of directors wrote in a letter to shareholders on Wednesday, calling Burkle's efforts a "scheme."

Burkle is running an alternate slate of directors, including himself, for election to Barnes & Noble's board at the company's annual meeting on Sept. 28. His Yucaipa investment firm holds 18.8 percent of Barnes & Noble's shares, making him its second-largest shareholder.

In the letter, which urged shareholders to support the company-nominated directors, Barnes & Noble said Burkle may team up with another top investor, Aletheia Research & Management, to try to take control of the No. 1 U.S. bookstore chain without paying shareholders a premium.

"This is nothing more than a thinly-veiled effort by Barnes & Noble to deflect criticism of this board's failures," Yucaipa said in an emailed statement, adding that Aletheia's investment in Barnes & Noble is "completely independent" of its own.

Aletheia and Yucaipa hold a combined 33.9 percent of the company, according to Thomson Reuters data, roughly equivalent to the stake held by Riggio, his family and senior executives.

Barnes & Noble also asked shareholders to reject Burkle's proposal to increase the threshold of its anti-takeover "poison pill" to 30 percent from 20 percent. Barnes & Noble put the pill in place in November in response to Burkle's quick accumulation of shares.

Barnes & Noble shares were up 4.4 percent at $15.30 in afternoon trading on the New York Stock Exchange.

WAR OF WORDS

Burkle built his fortune through a series of West Coast grocery store buyouts. He has faulted Barnes & Noble's management, citing the roughly 40 percent decline in its shares' value in the past year, and accused Riggio of packing the board with relatives and cronies.

In addition to himself, Burkle nominated Stephen Bollenbach, chairman of KB Home (KBH.N) and a former Hilton Hotels Corp CEO and Time Warner (TWX.N) board member; and Michael McQuary, CEO of Wheego Electric Cars Inc.

Barnes & Noble questioned Burkle's competence, saying in Wednesday's letter that Burkle and his proposed directors had been part of "some of the most spectacular technology and corporate failures in history."

The company blamed Burkle for being part of the Yahoo (YHOO.O) board that rejected Microsoft Corp's (MSFT.O) 2008 acquisition bid. It also faulted Bollenbach's role in the 2000 merger between America Online and Time Warner, calling it "possibly the worst" deal ever.

"Do not let Burkle destroy Barnes & Noble," the company urged shareholders.

In its statement, Yucaipa said the background and experience of its proposed directors "speak for themselves."

Last week, Barnes & Noble nominated David Golden, a partner in investment firm Revolution LLC, and David Wilson, chief executive of the nonprofit organization that runs the Graduate Management Admission Test, saying they would add "significant technology and financial experience."

Barnes & Noble on Tuesday reported a deeper-than-expected first-quarter loss as it incurred legal costs in its battle with Burkle and said the fight would hurt its full year results. [ID:nN24243498] It has also been contending with years of declines in physical book sales. (Reporting by Phil Wahba; additional reporting by Michele Gershberg, editing by Gerald E. McCormick, Dave Zimmerman and Bernard Orr)

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