Barnes & Noble Surges After Microsoft Investment
By James Callan and David Welch - Apr 30, 2012
Barnes & Noble Inc. (BKS) surged in New York after saying that Microsoft Corp. (MSFT) will invest $300 million in a new subsidiary that combines the bookseller’s Nook digital reader and college businesses.
The shares almost doubled to $27.20 at 8:24 a.m. Barnes & Noble had declined 5.5 percent this year before today.
The investment will give Microsoft about 18 percent of the unit, which has yet to be named, New York-based Barnes & Noble said today in a statement. The bookseller will own the remainder of the business, which has a valuation of $1.7 billion.
Barnes & Noble is working to bolster its Nook unit to focus on the growing demand for digital books and compete with Apple Inc. (AAPL) and Amazon.com Inc. (AMZN), whose Kindle device is the best- selling e-reader in the U.S. The venture will develop a Nook application for Windows 8, the newest version of Microsoft’s operating system that’s scheduled for release this year, expanding Barnes & Noble’s digital bookstore to hundreds of millions of customers.
The partnership with Microsoft could give the Nook the kind of content and global expansion to make it a bigger player in the tablet business, said Michael Glickstein, chief investment officer with G Asset Management LLC, a Barnes & Noble investor who has pushed for the company to spin off units. That kind of partnership makes the Nook business more valuable, Glickstein said.
‘Beyond E-Reading’
“With the new Windows rollout, there are so many things you can do with the Nook beyond e-reading,” Glickstein, who is based in New York, said today in a telephone interview. “Now that Bill Gates and Microsoft are in on the tech side, it’s absolutely compelling.”
Barnes & Noble has also settled its patent litigation with Microsoft and the new unit will have a royalty-bearing license, according to the statement.
Barnes & Noble projects the Nook business, which was started in 2009, to generate $1.5 billion in sales in the fiscal year ending April 30, accounting for about 20 percent of its total revenue.
In the quarter that ended Jan. 28, revenue from the Nook unit rose 38 percent to $542 million, while total sales rose 2 percent at the company’s 690 retail stores. Barnes & Noble has about 30 percent of the U.S. e-book market, compared with Seattle-based Amazon’s 60 percent. Barnes & Noble posted a net loss of $70.6 million in the 12 months through January.
Liberty Investment
Barnes & Noble put itself up for sale in 2010 following pressure from investor Ron Burkle. The process ended with John Malone’s Liberty Media Corp. investing $204 million in the company in August 2011.
Last month, Barnes & Noble named former cable television executive Michael Huseby chief financial officer as part of the bookstore chain’s shift toward becoming more of a technology company.
Jana Partners LLC, a hedge fund that has pushed for companies to sell off assets, disclosed a 12 percent stake in Barnes & Noble earlier this month.
To contact the reporters on this story: James Callan in New York at jcallan2@bloomberg.net. David Welch in Detroit at dwelch12@bloomberg.net
To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net
as reported by Dow -------------------------->>>>>>>>>>>>>>>>>>
Microsoft to Invest in Barnes & Noble's Nook
By GINA CHON And SHIRA OVIDE Microsoft Corp. is making a $300 million investment in Barnes & Noble Inc.'s Nook digital-book business and college-texts unit in a move that helps value the prized Nook business, the companies said.
Microsoft will have a 17.6% stake in a new subsidiary for the businesses in a transaction that values them at $1.7 billion, the companies said. That compares with Barnes & Noble's current market capitalization of about $791 million and could fuel the argument of some analysts and investors that the digital business should be separated from the retail division.
As part of the move, there will be a Nook application included in the new Windows 8, which is scheduled to have a release preview in early June. Later this year, computers and tablets with Microsoft's Windows 8 operating system are expected to go on sale.
The alliance comes after the companies openly feuded over the Nook. Microsoft last year sued Barnes & Noble and the manufacturers of the Nook, charging the device infringed on its patents. Barnes & Noble said Microsoft was trying to "bully" smaller companies that used versions of Google Inc.'s Android operating system, as Barnes & Noble does for the Nook.
As part of the Microsoft investment, the two parties have settled their patent litigation, and in the future, Barnes & Noble and the new subsidiary will have a royalty-bearing license under Microsoft's patents for the Nook, the companies said.
Barnes & Noble in January said it was exploring a spinoff of the Nook business. Monday it said it is still exploring how a separation of the new subsidiary may occur but cautioned such a move may not happen.
For the bookseller, the investment will mean access to more international markets, since Windows 8 is used across the globe. Currently, besides the Nook device, the Nook book-buying application is available only on the iPad and Android devices.
"Microsoft's investment in [the new subsidiary], and our exciting collaboration to bring world-class digital reading technologies and content to the Windows platform … will allow us to significantly expand the business," Barnes & Noble Chief Executive William Lynch said in a statement.
New York-based Barnes & Noble has had to invest heavily in the digital-books business to compete with Amazon.com Inc. and Apple Inc. Barnes & Noble in February said that for its fiscal third-quarter, its digital business reported a loss, before interest, taxes, depreciation and amortization, of $93.7 million, widening from a loss of $50.5 million a year earlier.
The company attributed the wider losses to continued investment, including its aggressive holiday advertising campaign that it said helped boost Nook sales at third-party retailers including Target Corp. and Wal-Mart Stores Inc.
Still, strong growth in sales of devices and digital content meant Barnes&Noble.com's total sales rose 32% to $420 million.
The stakes are high for Microsoft, after it allowed Apple's iPad a two-year head start to snag attention and sales from consumer- and business-computer users.
The Windows 8 operating system is the most dramatic reworking of Microsoft's key franchise in at least 17 years, and it is the Redmond, Wash., company's first significant effort to grab a foothold in the fast-growing tablet-computer market.
Microsoft also is prepping a Windows 8 digital storefront for applications, which have become an increasingly important selling point for tablet computers and other mobile gadgets.
Microsoft in February released a test version of Windows 8 to the public, along with a storefront that had roughly 100 apps. By contrast, there are more than 585,000 apps available for Apple's operating system for the iPhone and iPad. The February preview of Microsoft Windows 8 app store featured Amazon's Kindle app for reading electronic books.
Microsoft has plenty of financial resources for a Barnes & Noble investment. The company had about $59.5 billion in cash, cash equivalents and short-term securities as of March 31, according to securities filings.
—Jeffrey A. Trachtenberg contributed to this article. Write to Gina Chon at gina.chon@wsj.com and Shira Ovide at shira.ovide@wsj.com
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