After months of acrimony, the fight between Barnes & Noble (BKS) and its second-largest shareholder, billionaire Ron Burkle, appears to be over. The Wall Street Journal reported Wednesday night that the two camps have reached a settlement of a lawsuit Burkle (pictured) filed in May. A ruling on the case, which was heard in Delaware chancery court, was due imminently.
The deal is expected to be announced sometime on Thursday, though sources cautioned both the New York Times and Reuters that an 11th-hour reversal could scuttle the matter entirely. If it does go through as anticipated, the B&N/Burkle agreement will see some big changes to B&N's board of directors. Three new members will be added at the Sept. 28 shareholders meeting, expanding the total number of directors from 9 to 12. One appointed by Burkle through his Yucaipa Companies investment firm, and two lacking any overt ties to either side. At some point in the future, however, the board of directors will then shrink to 11 when an existing member takes himself out of the running for a re-election bid.
A New "Independent" Board Director?
One of those new and so-called "independent" directors is expected to be Stephen Bollenbach, the former CEO of Hilton Hotels Corp and current chairman of KB Home (KBH). Burkle served as a member of KB Home's board of directors for over 15 years, but declined to run for re-election for his seat in March.
In addition, Burkle will do a complete about-face from threats of a proxy fight at the board meeting. He'll be throwing his support behind founder and chairman Leonard Riggio's board re-election bid and will be part of the special committee of board directors and shareholders overseeing matters related to B&N putting itself up for sale earlier this month. B&N in turn will cover the substantial legal fees Yucaipa incurred by suing the board, which are estimated to be between $10 million and $15 million.
What Would a Burkle-Riggio Alliance Mean?
The settlement deal comes as a surprise after so many months of protracted salvos, which stemmed from the board invoking a "poison pill" measure last fall to curtail Burkle's stock grab to an under-20% threshold (Burkle's current stake is just over 19%). From a practical standpoint, Burkle and Riggio -- the company's top shareholder with 29.9% of total shares, and an extra few points coming from holdings by friends and family -- have much more to lose by staying at loggerheads than by working out their differences, as B&N figures out its options with respect to a sale.
As the top two shareholders, Riggio and Burkle are just shy of a majority stake, and adding the 16% stake of money management firm Aletheia Research and Management, which has longstanding ties to Burkle through their joint holdings of A&P (GAP) stock, means that as a collective, they -- or outside private equity firms the group decides to work with -- need only buy up roughly a third of outstanding company stock.
Another scenario may see Riggio, in concert with private equity, buying up Burkle's stake in the company -- or the reverse, with Yucaipa buying out most or all of Riggio's stake. If Burkle can engineer that particular situation, he would reach the coveted 36% stake he testified last month was his ultimate goal, denying on the stand he wanted to become B&N's majority stakeholder. But if B&N takes itself private, as is widely expected, a Burkle-Riggio alliance puts the pressure on minority shareholders who may be inclined to litigate and deter them from doing so, since it's a lot easier to cash out a few million shares to private equity than get involved in costly legal battles that may prove a drain on finances, and which won't stop B&N from its ultimate goals, whatever they may be.
So perhaps pigs will fly over Ninth Avenue after all. Or it may make more business sense for Burkle and Riggio to put lipstick on those proverbial pigs and go forward as a united front. A proxy fight and continuation of a longstanding battle would have provided Wall Street and the publishing industry with more drama. But the sober reality of depressed stock prices, nervousness about B&N's upcoming quarterly earnings report and the company's ability to keep technological pace with Amazon (AMZN) and Apple (AAPL) means it's a better bet for Ron Burkle and Barnes & Noble to battle alongside each other, not against each other.
UPDATE: It turns out that news of a settlement between Ron Burkle and Barnes & Noble was more than a little premature. The largest brick-and-mortar bookselling chain issued a statement this morning saying "Barnes & Noble and Yucaipa were unable to conclude an agreement on mutually acceptable terms." Burkle, through his investment firm Yucaipa Cos., was not available for comment.
This article has been modified to correct an error. The B&N Board will first expand to 12 members, and then will shrink to 11.
What Is Your Risk Tolerance?
Answer the question "What type of investor am I?".View Course »