* Deal would be mainly cash with assumption of some debt
* Shares rise more than 11 percent
* John Malone's Liberty Media could be key factor in a deal
By Siddharth Cavale and Phil Wahba
Feb 25 Barnes & Noble Inc said its
chairman, Leonard Riggio, plans to make an offer for the
company's bookstores, a deal that would result in splitting them
off from the company's Nook device and e-book business, which
has been losing ground to Amazon.com.
Riggio, who bought the original Barnes & Noble store in
Manhattan in the 1970s and used it launch a national chain of
big-box stores, would primarily offer cash and assume some of
Barnes & Noble's debts, according to a filing on Monday with the
Securities and Exchange Commission.
The offer would not include Barnes & Noble's Nook e-books
and device business or its college bookstore chain, which are
part of a separate unit created last year called Nook Media.
Barnes & Noble at the time said it was looking at strategic
alternatives for Nook Media, including a potential spin-off, but
has not given any updates since then.
Riggio, who owns nearly 30 percent of Barnes & Noble, did
not disclose how much he would offer for the stores. Analysts
said his success would hinge on satisfying John Malone's Liberty
Interactive Corp., which owns preferred shares that
are convertible into a 17 percent stake.
"This would allow the focus to go back to retail,"
Morningstar analyst Peter Wahlstrom told Reuters. "Nook is
definitely a distraction- it sucks out all the profits."
Shares of Barnes & Noble closed up 11.5 percent to $15.06,
valuing the company at about $900 million. The shares are still
well below their 52-week high of $26.
The 2011 bankruptcy of Borders Group gave Barnes & Noble a
short-lived reprieve from industrywide declines in book sales.
But during the 2012 holiday season, sales of books and other
non-Nook products at stores open at least 15 months fell 3.1
percent and fewer people set foot in its stores.
Still, the retail business is attractive because it
generates plentiful cash, much of which has been diverted since
2009 to develop the Nook devices and market them.
JOHN MALONE, WILD CARD
Barnes & Noble last month said it may close as many as a
third of the nearly 700 superstores it operates in the United
States in the next decade. Most of its leases are short-term,
making it easy for the chain to scale down as needed.
Barnes & Noble had put itself up for sale in 2010, but its
only offer came from Liberty Interactive. Liberty, however,
backed down from an initial $1 billion bid and instead bought
$204 million in preferred shares convertible for $17 apiece.
"The wildcard here is Liberty. They like Riggio but they
have different interests," Maxim Group analyst John Tinker said.
Riggio joins the growing ranks of executives or former
executives trying to buy the companies they founded, including
Dell Inc Chief Executive Michael Dell and Best Buy Inc
founder Richard Schulze.
Riggio in 2010 won a bitter fight for control of Barnes &
Noble with investor Ron Burkle, showing how much he sees the
chain as his "baby," Morningstar's Wahlstrom said.
Riggio, widely believed to be a billionaire, would have
little difficult pulling off a deal, analysts said. In addition
to his stake in Barnes & Noble, he made a windfall when the
company spun off GameStop Corp in 2004.
He also sold Barnes & Noble the college bookstore chain,
which he and his wife owned, for $514 million in 2009.
Janney Capital Markets, in a note to clients, said mounting
an offer would not be "difficult" for Riggio.
Barnes & Noble said it had set up a committee made up of
three independent directors to evaluate Riggio's proposal.
Evercore Partners will serve as financial adviser to the
company and Paul, Weiss, Rifkind, Wharton & Garrison LLP will be
legal advisers, the company said.
THE TROUBLE WITH NOOK
Microsoft took a 16.6 percent stake in Nook in 2012, and
last month Pearson PLC bought 5 percent, valuing the
unit at about $1.8 billion. Barnes & Noble owns the remaining
Barnes & Noble launched the first edition of its Nook
e-reader in 2009 to compete with Amazon's market-leading Kindle.
Nook caught on with readers at first, helping Barnes & Noble
garner as much as 27 percent of the U.S. e-books market.
But its popularity weakened in 2012 as Barnes & Noble
branched out beyond its e-readers and into tablets, where it
faced formidable rivals such as Apple Inc and Google
Earlier this month, Barnes & Noble said the loss from the
Nook business would probably be bigger than expected in fiscal
2013 ending April 28 and that sales for the year would fall
short of the $3 billion it had forecast.
Revenue from Nook businesses fell 12.6 percent from a year
earlier in the nine weeks ended Dec. 29, even as Amazon reported
rising sales of Kindles and e-books, leading many to wonder
about Nook's long term prospects.
Barnes & Noble is scheduled to report third-quarter results