Hell, it seems, has no fury like a stockholder scorned. And so it shouldn't have come as a surprise that Ron Burkle, the billionaire in charge of private equity company Yucaipa Cos., would eventually voice his complaints against the 'poison pill' measure that bars him from acquiring more than 20% of book retailer Barnes & Noble's (BKS) total stock and mitigates against a hostile takeover.He's done just that in a January 28 letter to the board filed with the SEC, which clearly sets out Burkle's goals: complain about preferential treatment given to the top company stakeholders, up his stock share to the 37% currently owned by company chairman Leonard Riggio, and, at the next stockolder meeting, attempt to "wag[e] a successful proxy contest". In other words, things are about to get a whole lot more interesting for B&N.

Burkle outlines his complaints in the tersely worded, blunt missive. He felt B&N stock is "currently undervalued" and, through open market purchases, boosted his stake. Then came the poison pill, and what Burkle describes as a double standard: how could he and other "non-Riggio" stakeholders be shut down below 20% when Riggio, over the past three years, "was allowed to increase his personal stake by approximately 10% of the outstanding stock"?

The Key Point

From Burkle's standpoint, the apparent dichotomy "shows that the Board and its Chairman endorse two sets of rules: one for the Riggio family, and one for the rest of the Company's shareholders." And here is the key point: if shares held by both Len Riggio and his brother (and company CEO) Steve are excluded from the poison pill, then they could collectively own a majority stock without triggering the missive -- but Burkle nor any other shareholder are denied more than a 20% stake.

Why is this the key point? Let's backtrack a few months, after Burkle's spree was halted and a different money management firm, Aletheia Research and Management, started its own stock buyup. As DailyFinance reported in December, Aletheia's gambit seemed especially curious because both it and Yucaipa Cos. both bought significant stakes in the supermarket A&P, a subsidiary of the Great Atlantic & Pacific Tea Company (GAP). The news grew more tangled in January, when Aletheia upped its B&N stock holdings to 15.71% according to a January 25 SEC filing -- just a day before Borders CEO Ron Marshall left the company for the same position at -- wait for it -- A&P.

It was hard not to smell something fishy in the water. Add Burkle's emphasis on the Riggio brothers combined stock holdings and it's even harder not to draw a conclusion that, should Burkle, in his words, get the B&N board, "to allow me and my affiliated funds to collectively acquire up to 37% of the outstanding shares (including the shares we currently hold) without triggering the poison pill" -- then together with Aletheia, plus a few choice stock pickups here and there, he would have a majority stake in the book retailer.

The Larger Question


The larger question is why Burkle wants to challenge the Riggios' "effective control" of B&N. It could well be that he's worried about share price taking a hit (and reaction to Burkle's letter caused B&N stock to climb 17% on Monday) but in the context of his history -- which includes taking airline companies private and shutting them down, or buying up grocery chains for amounts hovering around the $1 billion ballpark only to turn around and sell them for profit -- the answer has a lot more to do with asserting his own "effective control" of the company, especially in light of last week's parallel angling for controlling stock in luxury apparel retailer Barney's, whose current owner, Istithmar World Capital, hasn't had a lot of good news lately.

The ball is now in the B&N board's court to decide if the poison pill should stand -- and to deny Burkle's request -- or rule that the Riggios had no business implementing a measure that targeted any other investor but them. What's obvious is that someone will come away very unhappy, and the end result may be that Barnes & Noble won't have any stockholders at all, as it transforms itself, perhaps against its will, into a private company.

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