Burkle a board member or bidder for Barnes & Noble?

NEW YORK (Reuters) - Billionaire Ron Burkle has a fighting chance of ousting Barnes & Noble Inc's (BKS.N) founder and Chairman Leonard Riggio from the top U.S. bookseller's board and taking a director's seat.

If Burkle doesn't win at Tuesday's shareholder meeting, sources tied to this bitter, high-profile battle say he is likely to come back with a bid for the ailing store chain. Either way, investors must brace themselves for a rough ride.

"They're far, far apart on a real strategy for Barnes & Noble, and therefore there is no way they can co-exist," said Steve Mader, managing director of Korn/Ferry International's board services practice.

"Offers are likely to start soon after the vote, either from one of the losers or from buyers watching on the sidelines," he said.

Burkle, whose firm Yucaipa is Barnes & Noble's second largest shareholder with an 18.8 percent stake, has won the backing of prominent advisory firm Institutional Shareholder Services to get on the board with two other directors.

He is also likely to get support from a second major investor, Aletheia Capital Management, which holds a 15.1 percent stake.

Barnes & Noble and three top investor advisory firms have backed Riggio and two outside directors for election this year, recognizing the bookseller's problems but questioning whether unseating Riggio is warranted, given his expertise.

Riggio and other insiders own about 36 percent of the company, which has a board of nine members who are elected on a staggered basis to three-year terms.

"Management has just not been able to get it right," one Barnes & Noble shareholder, who has already sent in a vote for Burkle, told Reuters.

This shareholder said Riggio could also quickly launch a bid to take Barnes & Noble private if he loses. "Ultimately he's not going to let it go," the investor said.

FIGHT TO THE DEATH

The acrimony of the proxy contest deepened this week, with Yucaipa accusing Riggio of "intolerance" and Barnes & Noble taking a shot at Burkle's "long public record of personal peccadilloes and shareholder abuse."

They have also kept intense pressure on investors, and the Barnes & Noble shareholder said he had received calls several times from both sides.

"These guys are going to fight to the death," Mader said.

Burkle's main argument is that current directors are beholden to Riggio and have failed to combat the chain's long sales decline as readers move to digital book formats.

Barnes & Noble, in turn, has accused Burkle of surreptitiously plotting to take control of the company and not putting forth a detailed plan to turn it around.

The bookseller put itself up for sale in August, but the auction has been sidelined by Burkle's subsequent proxy fight.

Riggio has said he may make a bid as part of a group. His possessiveness for the chain he built up into the largest U.S. bookstore chain means he is likely to do that in short order if he loses, observers said.

Theoretically, both Riggio and Burkle could end up getting voted in if enough shareholders withhold support for one of them. But it is far more likely only one will land on the board, and leave the other struggling to wield influence, given their different visions for the company.

Burkle and Barnes & Noble nearly reached a deal in August that is said to have included a board seat for Burkle, but talks broke down at the very last minute, prompting Burkle to launch the proxy war. Few observers believe they will patch up their differences before the annual meeting.

POISON PILL IN THE WAY

If Burkle loses, he is unlikely to just walk away, given his large stake that has declined in value but is nonetheless still worth $192.7 million. Barnes & Noble's total market value is $982 million, and its shares have fallen 21.4 percent in the last year.

Burkle has so far been blocked by a poison pill that limits any shareholder, except for Riggio, who is grandfathered, from holding 20 percent or more. The pill was put in place last November after Burkle doubled his stake within a few days.

Burkle is asking shareholders to raise the pill trigger to 30 percent and is appealing a Delaware court's decision in August to uphold the pill. Shareholders are set to vote in a special meeting on November 17 on whether to ratify the pill.

In the event of a loss on Tuesday, Burkle will likely redouble his efforts to overturn the pill and launch a bid for the company, the shareholder and analysts said.

"If he can't get the proxy, he could make money talk," Mader said, meaning Burkle would line up investors for a bid.

Burkle asked U.S. antitrust regulators for permission in 2009 to buy enough shares to give him control of Barnes & Noble, though his representatives have repeatedly denied the accusation he was seeking to take over the bookseller.

But should Burkle win in the end, it may be better for him to build a bridge back to Riggio and allow the company to create or vacate a spot for its founder back on the board.

"The guy has so much industry expertise and knows the business inside out, he would be a resource you wouldn't want to lose," said Morningstar analyst Pete Wahlstrom.

(Reporting by Phil Wahba; Editing by Michele Gershberg and Richard Chang)