* Microsoft may bid $1 bln for digital assets-TechCrunch
* Neither company commenting on report
* Analysts say price may be a little high
* Fate of college bookstores up in the air
(Adds date of documents, possible reasons for deal)
By Phil Wahba and Ben Berkowitz
May 9 Shares in Barnes & Noble Inc
soared 22 percent on Thursday after a report that Microsoft Corp
is considering an offer to acquire the tablet and
e-book business of B&N's Nook Media unit.
The technology website TechCrunch reported that Microsoft,
which already owns a 17 percent stake in Nook Media, was
proposing a $1 billion offer to buy all of Nook's digital
The report also suggested that Nook would stop selling
Android-based tablets entirely by the end of fiscal 2014 in
favor of distributing content via other publishers' platforms.
A source familiar with the documents cited by TechCrunch
confirmed their authenticity. The source said the documents
dated from March, suggesting that any deal - if one is even
pending - was not imminent.
It was not clear from the TechCrunch story whether Microsoft
had formally made an offer to B&N or whether B&N had replied.
B&N and Microsoft declined to comment.
Microsoft acquired its stake in the Nook Media unit a little
more than a year ago in a deal that valued the entire unit at
$1.7 billion. In December the British publisher Pearson Plc
bought a stake in the unit at a $1.8 billion valuation.
But Nook Media sales have disappointed since. Revenue
dropped 26 percent in the most recent holiday quarter as Nook
sold fewer digital readers and tablets and had to cut prices.
Just this week B&N slashed the price of its best tablet by
one-third as a special promotion for Mother's Day.
It was not immediately clear why Microsoft would want to buy
Nook's digital assets, unless it wished to make a preemptive
strike against Google and shift Nook away from the
Android platform. There is already a Nook app for Windows 8
Microsoft's recent acquisitions - such as online chat
service Skype and business networking site Yammer - have not
Barclays analyst Alan Rifkin, in a note to clients on
Thursday, said a lower valuation for the Nook Media unit was
appropriate and that $1 billion was even higher than he had
B&N shares rose 22 percent to $21.70 in afternoon trading.
The stock last traded at those levels a year ago, around the
time of the Microsoft investment.
The stock is heavily shorted, with almost 36 percent of its
float sold short as of April 15. Short sellers borrow stocks and
sell them, betting the price will fall. Where short interest is
high, that can exacerbate a rally, as people rush in to cover
Credit Suisse, in a note to clients, said the suggested
terms of the Microsoft offer implied that Barnes & Noble was
worth about $27 per share.
COLLEGE BOOKSTORE CHAIN
Nook Media also includes a college bookstore chain, but the
TechCrunch report suggested the Microsoft offer would include
only the e-book, digital reader and tablet assets.
If Microsoft carves the college bookstore chain out of the
Nook Media unit, and B&N takes back those stores, Credit Suisse
said the valuation of B&N could rise even higher.
While the college bookstore chain has provided B&N with much
needed cash, sales have been weak. In the first three quarters
of the fiscal year, sales fell 0.3 percent, while operating
profit fell 7 percent to $115.8 million.
The college textbook business is undergoing a transformation
with the shift to digital, as publishers move away from large,
heavy books that last for years to multiple packages with
smaller bites of content.
Companies like News Corp and Apple have
started to make plays on the digital textbook market as that
COULD SPEED OTHER SALES
Earlier this year, B&N Chairman Leonard Riggio said he
wanted to buy the company's chain of nearly 700 namesake
bookstores. Selling off Nook could simplify that process,
especially if it reunited Riggio with the college bookstore
business, which he sold to B&N in 2009.
B&N first indicated it might spin off the Nook business in
early 2012. The retailer has spent hundreds of millions of
dollars on the unprofitable unit, trying to make its devices
competitive against devices from Amazon, Apple and
Google, among others.
The latest IDC market share data for tablets, released
earlier this month, leaves B&N out of the industry's top five
vendors, suggesting its share of the global market is
negligible. Microsoft's new Surface tablets - the first of which
hit the market last October - have only a 1.8 percent share.
B&N has typically launched a new edition of the Nook every
year. But this year it simply updated its high-definition
tablets by adding Google's app store, which a number of analysts
saw as an easy way for the company to launch a "new" Nook.
One uncertainty in any Microsoft bid is how Liberty Media
would respond. It holds preferred shares in B&N that,
if converted, would represent 17 percent of the company. Liberty
was not immediately available to comment.
One analyst following Barnes & Noble said a Microsoft deal,
if it happens, would be dramatic but not necessarily surprising.
"We must be careful here because details are lacking, but
with devices phasing out, we see sale of the digital assets as
an effective sale of the entire Nook business, unless
co-ownership or leasing of digital content is arranged," Stifel
analyst David Schick said in a research note.
(Reporting by Phil Wahba and Ben Berkowitz; Additional
reporting by Liana B. Baker and Bill Rigby; Editing by Alden
Bentley, Theodore d'Afflisio and John Wallace)