To the surprise of the publishing industry and to the delight of worried investors, Barnes & Noble (BKS), the largest bricks-and-mortar bookstore in the country, has put itself up for sale.

The company phrased it a little more evasively in a release announced late Tuesday, saying it "intends to evaluate strategic alternatives, including a possible sale of the company, in order to increase stockholder value." But let's tell it like is: The stock has been in veritable free fall ever since Barnes & Noble reported disappointing earnings last month, and it is now 'significantly undervalued." The company has to do everything in its power to change the course of action.

As a sign it means business, Barnes & Noble has retained Lazard to serve as its financial advisor and Morris, Nichols, Arsht & Tunnell LLP to serve as its legal advisor. They've also appointed four members of the board of directors -- George Campbell Jr., William Dillard II, Margaret Monaco and Patricia Higgins -- to "consider all alternatives to increase stockholder value and will recommend a course of action."

Founder and chairman Leonard Riggio, Barnes & Noble's top shareholder, would certainly like to be the one to rescue the company. To that end. he's told the board that he "intends to consider the possibility of participating in an investor group to acquire the company." Plainly stated, the company would ideally like to step off the stock exchange and go private.

As DailyFinance indicated several weeks ago, there are several compelling reasons why Barnes & Noble would pursue this particular course of action. There's the growing e-book business that isn't moving fast enough for shareholders but would be attractive for private equity. There's the market capitalization that just keeps dropping (it was $750 million in July, now it's just over $700 million, and Riggio's own stake is now a lot less than the $450 million he paid to buy Barnes & Noble's College division on behalf of the company). And the third and thorniest reason: a man named Ron Burkle.

The trial launched by Burkle against the board for triggering a "poison pill" when the billionaire's big stock grab last fall nearly hit 20% (it now stands around 19%) has finished, pending only an opinion from Delaware Chancery Court. That opinion is expected any day now, and Barnes & Noble's announcement suggests they believe the judge's verdict won't go their way. By putting itself up for sale, Barnes & Noble also effectively deflates whatever the Delaware Court decides, since the company is now free to entertain offers of a stock buyback that would ordinarily have triggered the poison pill.

As if to confirm this line of thinking, Barnes & Noble issued a proxy statement announcing the annual shareholders meeting on Sept. 28 and said the poison pill measure wouldn't be subject to a vote by the board, stating only that "the company does not intend to present any business for action at the meeting other than as described in this proxy statement."

In other words, that opens the door for Ron Burkle to up his stake to the 36% he's wanted all along, or for him to team up with No. 3 shareholder Aletheia Research & Management for a joint bid for Barnes & Noble. Here's the rub: Barnes & Noble claims its board is "independent," but the chairman of this "Special Committee," Patricia Higgins, was a key witness who testified on the company's behalf that the poison pill measure should stand.

The board also said in its proxy statement that while it "does not know whether [Burkle] will in fact nominate individuals for election as Directors at the Meeting or solicit proxies for that purpose," any board nominees put up by Burkle and his company, Yucaipa, "have NOT been endorsed by the Board, and we urge you NOT to sign or return any proxy card that you may receive from Yucaipa."

The likelihood that an offer for Barnes & Noble that involves Burkle in any way, shape or form would secure this Committee's approval, then, has about as good a chance as seeing flying pigs circulating above the company's Ninth Avenue headquarters.

Where Burkle has leverage, of course, is that an attempt by Riggio to corral a private investor group to buy B&N might trigger another possibility: extended lawsuits by key shareholders. Burkle, of course, is the #2 company shareholder. He's already proven that he can litigate when the need arises. If he were to make a play for the company, and is denied, that might be grounds for another courtroom battle.

Certainly the news of Barnes & Noble's sale was greeted warmly on Wall Street. In after-hours trading, the stock leapt 27% to $16.30 a share. But while Barnes & Noble has taken a necessary step to secure a future it feels comfortable with, the outcome of any potential sale will remain uncertain so long as a primary shareholder like Ron Burkle has the temperament, and the means, to fight any proposals he doesn't like.

Increase your money and finance knowledge from home

Introduction to Economic Indicators

Measure the performance of the economy.

View Course »

Socially Responsible Investing

Invest in companies with a conscience.

View Course »

Add a Comment

*0 / 3000 Character Maximum


Filter by:

Ron Burkle's poison pill reaches into other businesses. Ron Burkle was on KB Home Board of Directors when he built this Lemon. he has never answered a single letter sent to him. B&N customers to expect the same customer service. Google "KB Home Sucks" I'm not the only one abandoned by Burkle and KB Home. Just because your a Billionaire does not excuse your behavior, obviously the billions were made on the backs of the small guy. Ron your a disappointment not a savior of society.

August 09 2010 at 12:12 AM Report abuse rate up rate down Reply

I hope Barnes and Noble remains. Nothing is like a real live book in your hand. And "brick and mortar" bookstores are the perfect place to indulge that pleasure so you can decide what book you really want to read. It may not be what is currently touted by reviewers and on line. But how will you know if you can't touch it and read the cover? It's a shame that the shareholders are more important than the customers, but that seems to be the current business model for all business. The consumer comes last in the calculations. And Burkle seems like the 2 year old who wants what he wants regardless.

August 04 2010 at 4:29 PM Report abuse +1 rate up rate down Reply

I certainly hope that there's still a future for the "bricks-and-mortar" stores. I may sound like a hopeless geek but, walking and browsing and exploring in a large bookstore is one of life's little pleasures.

August 04 2010 at 9:59 AM Report abuse +5 rate up rate down Reply

If customers were as valued as stockholders, you'd have more of both :)

August 04 2010 at 9:58 AM Report abuse rate up rate down Reply

Please, please, please - don't shut Barnes and Noble down. We finally got one almost around the corner from my house - before that I was willing to travel several miles to a store.

I love the ambience, the knowledgeable helpfulness of the people, the big cushy reading chairs, the wonderfully diverse stock, the inviting tea and sandwich shop.

Everyone in my family and tons of my friends have pushed away from books online. We agree that to get the fullest enjoyment one must hold a book, turn its pages, smell the ink and just become a total part of the delightful reading experience.

Do not deny America this pleasure. We are already thought of as non-readers who park in front of the screen, be it TV or online.

My last card was so worn through you sent me a new one!

If this is not going to the people who can make a difference, can someone pleass route me in the right direction so that I can contact them?

Great thanks. Keep reading.
Ola Jordan
St. Louis, Mo

August 04 2010 at 9:54 AM Report abuse +7 rate up rate down Reply

Don't understand a lot of what was discussed in the article except it looks like some billionaire is trying to make a lot more money by destroying B&N. Personally I enjoy nothing more than spending an hour or two and around $50 a couple of times a month in B&N...if this guy gets his way...Second Time Around, here I come...I know all about free enterprise but a dude that just goes in and knife's the company and employees to get yet another billion and some kind of twisted satisfaction over a "poison pill" a pretty nasty piece of work...

August 04 2010 at 9:27 AM Report abuse +4 rate up rate down Reply

Why would burkle want more shares of a company / industry that is failing? I think that he is just another rich idiot who has more money than common sense.

August 04 2010 at 9:27 AM Report abuse +3 rate up rate down Reply

Barnes and Noble pioneered the coffee, schmaltz and book theme with great success. Now, like so many operations, it has been hit by technology and the diminishing need for paper books. Simply put, the business is not there as it has been. Despite authors churning out books twice a year and Chinese printed "cheep books", B and N are hurting. Going private and scaling back to profitable market zones will save them a while longer. As they are, the writing is on the wall, (or the eBook).

August 04 2010 at 8:34 AM Report abuse +2 rate up rate down Reply
1 reply to beemerboxer's comment

I am really beginning to hate new technology! Call me old fashioned, but I still enjoy using my senses of touching, smelling and one on one, person to person, plain old speaking with my mouth conversations. Some new tech. is for the better, but there is a whole lot that is destroying the delicate weave of people connecting with other people. To me that will be poison to our society.

August 04 2010 at 12:32 PM Report abuse +5 rate up rate down Reply

Corporate raiders like Burkle are a poison themselves !

August 04 2010 at 8:18 AM Report abuse +6 rate up rate down Reply

grooooannnnnnn - i LOVE B&N!!! i hope somebody can save them. : (

August 04 2010 at 7:52 AM Report abuse +8 rate up rate down Reply