Malone eyes Nook in "cheap" Barnes & Noble bid

NEW YORK Fri May 20, 2011 6:32pm EDT

1 of 2. Ben VanderWerp demonstrates the features of a Nook e-reader for a customer at a Barnes and Noble store in Boston, March 18, 2011.

Credit: Reuters/Brian Snyder

NEW YORK (Reuters) - Cable TV pioneer John Malone likes a bargain, and his $17 a share bid for Barnes & Noble Inc is already being slammed for undervaluing the largest U.S. bookstore chain.

Shares of Barnes & Noble jumped about 30 percent to close at $18.33 on Friday as Wall Street analysts argued the company was worth more, pointing to the growing success of the bookseller's Nook e-reader as an opportunity to be exploited by Malone's Liberty Media Corp. They said the jump also showed that investors believe other bidders are bound to come in.

Until the Liberty Media offer, the 9-month long auction process was said to be moribund. A month ago, Barnes & Noble shares had fallen as low as $8.45.

Long-time watchers of Malone said he would likely not raise his bid by much more and that the financial opportunity was probably more important than its business strategy.

"Malone will no doubt see value in the brand and the franchise and believe they can derive incremental value in the business," said Collins Stewart analyst Thomas Eagan.

Malone, 70, is known in the media business for his shrewd tax-efficient investments and owns stakes in a wide range of media and Internet assets including shopping channel QVC, satellite company DirecTV Group and Starz Entertainment. During his run as an operator in the cable TV business he was known as a ruthless operator and former U.S. Vice President Al Gore dubbed him "Darth Vader."

Apart from media, this year Malone became No. 1 private landowner in the United States with 2.1 million acres of land.

Barnes & Noble said late on Thursday that Liberty Media had offered $17 per share, or $1.02 billion, and that a special board committee would look at the bid.

Liberty Media said the offer is for about 70 percent of the bookseller, which will be attributable to its Liberty Capital tracking stock. The company said its cash contribution toward the purchase, depending on the financing it can obtain, will be around $500 million.

Liberty's offer is conditional on top shareholder and founding Chairman Leonard Riggio keeping a stake in Barnes & Noble, which he built from a local New York bookstore into a national chain, and staying involved in running the company.

Malone's Liberty Media has pursued a strategy in recent years to snap up cheap distressed media-related assets in the hope of making an outsized return on investment.

In February 2009, Malone snapped up a 40 percent stake in Sirius XM Radio by lending $530 million to the satellite radio company, which was on the verge of bankruptcy. Malone was rewarded in just a few months after Sirius turned its business around and the stake is now worth more than $3.5 billion.

STORE CLOSINGS

Barnes & Noble, which has faced years of declining print book sales, put itself up for sale in August, saying its shares were undervalued.

Janney Capital Market analyst David Strasser called the $17 offer "inadequate."

"Barnes & Noble has the potential for earnings well in excess of their previous peak earnings simply by maintaining its current 27-28 percent market share in digital books," Strasser wrote in a research note.

Barnes & Noble operates 720 superstores, but readers have been gradually switching to digital books from print versions.

One person familiar with Liberty Media's thinking said the company had been most interested in the Nook during talks, implying very little interest in keeping stores open.

If Liberty Media wanted to close Barnes & Noble stores, it would be easier than it was for bankrupt rival Borders Group.

Barnes & Noble has about 400 leases up for renewal by April 30, 2015, with over half set for 2012 and 2013. In contrast, Borders, which has closed nearly half of its superstores since filing for Chapter 11 protection, was locked into long-term leases.

In 2009, Barnes & Noble introduced the Nook to compete with Amazon.com's market-leading Kindle e-reader. Forrester Research estimates Barnes & Noble is now second only to Amazon in e-book sales.

E-books now make up about 14 percent of overall industry sales. Amazon said on Thursday that it was selling more e-books than paper books.

Credit Suisse analyst Gary Balter raised his target price for Barnes & Noble shares to $21.

A deal with Liberty would better equip the bookseller to battle with technology giants Amazon and Apple Inc, Balter wrote in a note.

"With strong backing of a media company like Liberty, we believe Barnes' digital business will be able to compete more effectively," Balter said. In turn, he added, Liberty would win Barnes & Noble's valuable e-book business.

Standard & Poor's analyst Michael Souers kept his "hold" recommendation and $19 price target. "We think there is a solid chance of an improved offer," he said.

Shares of Liberty fell 1.47 percent to end at $17.71.

(Reporting by Phil Wahba, Yinka Adegoke and Jessica Hall in Philadelphia; Editing by Lisa Von Ahn and Richard Chang)

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