A day after reporting a heavier quarterly loss than investors were expecting, Barnes & Noble's (BKS) board of directors has sent a letter to shareholders urging them to vote for their trio of directors up for election -- including founder and chairman Leonard Riggio -- and rebuff Ron Burkle's proxy fight.
Burkle is trying to land three seats on the board as part of his efforts to gain control of the bookseller. The letter is part of annual-meeting materials B&N mailed to shareholders, formally launching its proxy battle.
The board's entertainingly written letter, filled with upper case text, was filed with the SEC on Wednesday morning. The directors urged shareholders to reject Burkle's proposals for B&N at the annual shareholders meeting on Sept. 28 on the grounds that they "would weaken shareholder protections and could allow Burkle to team with another investor, Aletheia Research & Management, to take control of the Company without paying shareholders a premium."
Trying to "Gain Creeping Control"
The connection between Yucaipa and Aletheia, first pointed out by DailyFinance, runs quite deep, with the two companies accumulating approximately 60% of the total stock in supermarket chain A&P (GAP).
The B&N board believes Burkle and Aletheia's actions "are part of a similar effort to gain creeping control of Barnes & Noble" and adds: "Burkle claims he is not working together with Aletheia to gain control of Barnes & Noble, but can you really believe that?"
The only thing stopping the two firms from accumulating a similar joint majority stock holding is the "poison pill" measure triggered by a threshold of 20% total stock -- and which spurred Burkle's lawsuit in Delaware Chancery Court. "But guess what? He LOST," crowed the board.
Attacking Burkle's Involvement in Tech Missteps
B&N's board also criticizes Burkle for having "no strategic vision and no plan for the company's future" at a time when the retailer's total e-book share has gone from zero to approximately 20% in less than a year. (B&N's digital sales were the brightest spot in the most recent quarter's results.)
Worse, the board charges, Burkle and his chosen board nominees "have been involved in some of the most spectacular technology and corporate failures in history" -- troubling, "given the importance of technology to Barnes & Noble in building its electronic book business."
Specifically, the board brings up Burkle being on the board of Yahoo! (YHOO) when it rejected Microsoft's acquisition bid, Stephen Bollenbach's ties to the expensive and eventually failed merger between Time Warner (TWX) and AOL (which owns DailyFinance), and Michael McQuary being "pushed out" of Earthlink after its stock price declined 70% during his tenure as president. Both Bollenbach and McQuary are Burkle-nominated candidates for election to B&N's board.
Again and again, Barnes & Noble's board stresses that shareholders who support Burkle are voting for the billionaire's self-interest and against the interests of company shareholders. Metaphorically speaking, and in keeping with the designated color scheme for the proxy contest, siding with B&N is, in their minds, a vote for the white knight. Choosing Burkle, in the board's view, means shareholders will bleed copious amounts of cash for gold that will sink the company's way of doing business.
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