July 12, 2011 / 8:00 PM / in 6 years

Dealtalk: Barnes & Noble won't get better bid than Malone's

NEW YORK/PHILADELPHIA (Reuters) - Nearly a year after Barnes & Noble Inc (BKS.N) put itself up for sale, the largest U.S. bookstore chain likely will settle for the only firm offer it has received: $1 billion from John Malone’s Liberty Media Corp LINTA.O.

<p>Shoppers browse at a Barnes and Noble bookstore in Arlington, VA, August 24, 2010. REUTERS/Kevin Lamarque</p>

Liberty made Barnes & Noble a $17 per share, $1 billion offer in May, sending shares up on the belief that a true auction was underway and other suitors would emerge.

Shares rose to $21.06 in June after more than doubling since April when the auction seemed moribund. But the stock has drifted back to just above the offer price, reflecting the belief that no other bids will come.

“It’s been a very open process for a year now,” one person familiar with the situation said, adding that if a rival bidder were to emerge, it would have done so by now.

During that year, Barnes & Noble has had time to show that its digital strategy centered on its popular Nook e-reader, its most valuable asset, is paying off.

Barnes & Noble, which is being advised by Lazard Ltd (LAZ.N), drew interest at first, largely from tire kickers.

But suitors stayed away, seeing how much the chain still depends on shrinking book sales at its 717 stores, and that investing in the Nook to help it compete against devices by Amazon.com Inc (AMZN.O) and Apple Inc (AAPL.O) among others will put a dent in its financial performance for years.

While the Liberty bid was made only eight weeks ago, analysts and bankers expect Barnes & Noble’s board to make a recommendation by late summer to avoid a drawn-out process that would hurt investor sentiment in the absence of other bids.

One long-time shareholder told Reuters he dumped his shares of Barnes & Noble this spring, before the Liberty bid, because of the slow auction process.

Leonard Riggio, Barnes & Noble’s founder, chairman and largest shareholder with a 30 percent stake, last week hinted that he was leaning toward the Liberty offer, telling the Wall Street Journal he “couldn’t think of a better partner.”

“This makes this more likely that the bid will ultimately be accepted,” said Standard & Poor’s analyst Mike Souers.

A Barnes & Noble spokeswoman said Riggio’s comments were made in response to praise from Malone, whose bid is contingent on Riggio staying on in some capacity. She declined to comment on the auction process.

Barnes & Noble’s most recent quarterly results, which showed a larger-than-expected loss, sent shares falling.

“It’s more likely with the negative results that shareholders will be acquiescing to the $17 buyout offer,” Souers said.

MAYBE A TAD SWEETER

Liberty Media may raise its offer slightly to get a solid endorsement from Barnes & Noble’s board and to placate some shareholders, said the source, who declined to be named because he was not authorized to speak to the media.

Any sweetener would be modest because there is no pressure from a rival bidder, the source predicted.

One obstacle to a deal could be opposition from Ron Burkle’s Yucaipa Companies, which is the second-largest Barnes & Noble investor with 19.7 percent of shares.

At $17, Burkle would have to take a loss. He bought shares, starting in 2009, at about $18 to $21. But he bought another 603,000 shares a few days after Liberty made its offer, raising speculation he could try to make a bid of his own. A “poison pill” prevents him from owning more than 20 percent of shares.

A spokesman for Yucaipa did not return an email seeking comment on Burkle’s thoughts about the Malone deal.

Without another firm offer 11 months into the sale process, the pressure is on Barnes & Noble to accept a deal at last.

“At this point, it doesn’t seem you have any other takers,” said Morningstar analyst Peter Wahlstrom.

Edited by Robert MacMillan

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