Malone's Barnes & Noble Buyout Bid Is a Bet He Can Beat Amazon and Apple

Malone's Barnes & Noble Buyout Bid Is a Bet He Can Beat Amazon and Apple Liberty Media, the conglomerate controlled by mogul John Malone, made a bid on Thursday to buy a majority of Barnes & Noble (BKS) for about $1 billion. The offer of $17 a share is about 20% above the price where the book retailer's stock closed Thursday, but investors may not be terribly pleased, as Barnes & Noble shares have traded as high as $20.45 over the last year.

Liberty said in its announcement about the potential transaction that its "proposal, which contemplates that the acquisition will be structured as a merger, is subject to various conditions, including satisfactory financing and the participation of founding chairman Leonard Riggio, both in terms of his continuing equity ownership and his continuing role in management. Liberty's equity ownership, which would be attributed to the Liberty Capital group, is expected to be approximately 70% of Barnes & Noble. Liberty expects that its cash contribution toward the purchase price, depending on the amount of financing that can be obtained, will be in the range of $500 million."

Barnes & Noble's board has had the firm on the block for almost a year, but recently suggested that it would continue on as a publicly traded company. Fund manager Ron Burkle waged an unsuccessful proxy war to take control of B&N in late 2010.

The bid by Malone is almost certainly based on Barnes & Noble's Nook, and its ability to effectively compete with Apple's (AAPL) iPad and Amazon's (AMZN) Kindle. The iPad, of course, dominates the tablet market and is a de facto e-reader, while the Kindle is the market share leader among dedicated e-readers. But Barnes & Noble recently made disclosures to the SEC which indicate it may have a new version of its Nook e-reader on the way. The filing said that the new product would be announced on May 24.

A bet on the new Nook may not be such a long one, although sales of its previous incarnations have been well behind those of the Kindle and iPad. Amazon recently said that its e-book sales have surpassed the sales of print books, outselling them by a ratio of 105 to 100 since the start of April.

Malone's offer is a gamble that the overall trend of Barnes & Noble's sales will improve sharply, probably via e-book sales, or that he can significantly cut the book retailer's costs. In its latest 10-Q, Barnes & Noble reported revenue of $2.33 billion for the quarter that ended Jan. 30, up a tick from $2.17 billion in the same period a year. Net income fell from $80 million to $60 million. Both figures stand in stark contrast to both the size and growth rate of Amazon's results. Also, Barnes & Noble's assets are dominated by inventory and building and lease-hold improvements. It only had $26 million in cash at the end of the quarter. That's just not much of a war chest to compete against the consumer electronics offerings of Apple and Amazon.

Barnes & Noble has over 1,300 stores. Malone may think some of these can be shuttered to improve margins. He can certainly hope to learn from the experience of rival bookstore chain Borders, which filed for bankruptcy in February and has had to close a large fraction of its outlets. Borders may now be sold off in pieces because no single buyer has expressed serious interest in the intact firm.

The business of operating physical bookstores is in an undeniable decline: Malone though, seems to be willing to bet $1 billion on the chance that he can increase Barnes & Noble's e-reader and e-book sales faster than its bricks-and-mortar sales run out.



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Sonya

some websites try to create a book store feel...
but there really is nothing like the real deal!
Sonya
www.oldbooksmarket.com

May 23 2011 at 5:15 PM Report abuse rate up rate down Reply
Sonya

The aspect of "browsing" in a bookstore is still strong for some. I for one hope all brick and mortar bookstores do not go away.
Ambience is hard to replicate online.

May 23 2011 at 5:13 PM Report abuse rate up rate down Reply
walkm

I remember Barnes & Noble being the palce I could order books via catalogue in the pre-online web buying days.
Sure hope this doesn't signal the end for Barnes & Noble. Always want to have competition to force the other book retailers to offer their best. Always want more options not just one source of books.

Michael
www.ThorneSmith.com

May 23 2011 at 1:51 PM Report abuse rate up rate down Reply
isoroku5

I went into a Barnes and Noble store the other day for the first time in a couple of years. It looks like they just tore the "Borders" labels off everything and replaced them with their own. Barnes and Noble is a pop-culture bookstore filled with light-reading garbage not worthy of a third-grader.

May 22 2011 at 10:56 PM Report abuse -1 rate up rate down Reply
jsand96876

I really enjoy my kindle and have about 250 books loaded onto it many of which were downloaded for free on Amazons web site. I still somehow prefer the feel of flipping real pages when I read a book and continue to purchase many books from both ebay and Amazon. I know that the bound paper book may someday go the way of the vinyl record and 8 track tape but I will continue to buy good old fashion books. I really don't think Barnes and Noble can compete with Amazon.

May 22 2011 at 3:03 AM Report abuse rate up rate down Reply
savemycountry911

Florida is going to phase out textbooks in favor of ebooks. I see some advantages like kids not having to carry heavy back packs. The trouble is irresponsible kids either lose or ruin text books in a short time and will do the same with ebooks. This won't save the money strapped state anything.

May 21 2011 at 8:31 PM Report abuse rate up rate down Reply
majorthomecho

Whatever happens, I hope they keep stores open. I like going to bookstores and buying physical books.

May 21 2011 at 6:29 PM Report abuse +7 rate up rate down Reply
Skip Manley

Liberty Media, great.. the same people who their customers say are behind the easy saver scam, (proflowers, shari berries..) they'll run it like the old columbia records.. bill you just a little bit... forever...

May 21 2011 at 3:31 PM Report abuse rate up rate down Reply
Marianna

Mr. Malone, I have a prayer for you: should you buy B&N, could you PLEASE kick Century 21 out of ther upcoming location on Broadway and 66? It is a DISGRACE that Manhattan would allow a neighborhood and family bookstore like B&N, which had been a community pillar for 16 years, where kids literally grow up in and people meet (and BUY) , a cultural location across the street from iconic temples such as the Alice Tully Hall and Lincoln Center, to be replaced by the seller of junk clothing. I will boycott Century 21 forever for this (I could actually go to Forever 21.....) and sincerely hope they will go out of business soon.

May 21 2011 at 3:26 PM Report abuse +1 rate up rate down Reply
pete

I have yet to figure out why people buy ebooks.

Once you've read it what can you do with it? You can't pass it on to anybody else unless they also have a reader. You can't donate it to a library or 3rd world country. It sits in your reader until you delete it.

The only productive reason to have an ebook reader is to story reference books on it, but of all the readers out there, non yet has a search capability that allows immediate access to specific medical, physic, scientific, or any other reference points.

May 21 2011 at 1:02 PM Report abuse +8 rate up rate down Reply
2 replies to pete's comment
Chris

No, that isn't the only productive reason to have an ebook reader. Another good reason is that we won't have to continue "killing trees". It is a much better option than actual books. Welcome to the Future!

May 21 2011 at 3:36 PM Report abuse -5 rate up rate down Reply
1 reply to Chris's comment
chessgms2

Chris, pulp and paper products mostly come from Tree Farms......typically otherwise useless land that only supports fast growing pine trees which are purposefully planted and eventually harvested for their wood products.....and then are replaced by more. Two hundred year old Oaks aren't sawed down to make into copies of books. And while the pulp and paper industry tends to throw off a lot of pollutants, it's nothing compared to the environmental damage done by using petrochemicals for the E-Book plastics or the non-regulated discharge of other pollutants involved in the electronics manufacturing industry........most of which is being increasingly done in Third World locations where no real concern or laws address industrial waste and the adding to the Earth's toxic runoff burden.
So, name your poison. Frankly, I think paper the lesser of the two evils. (Would you be more comfortable with Hemp paper?)

May 22 2011 at 9:01 AM Report abuse +2 rate up rate down
Team Dragon

Pete, I have 4 Sony readers and 2 computers on my Sony account. Over 400 books on my computer. Tell me how many feet of book shelves would I need? I travel for a living and I found that when i was on the home bound trip there were 2-3 hard back books in my suitcase now there is 1 Sony reader in my camera bag. E-readers are just like going from using a pencil to a calulator and now we are using computers. I sounds to me that you are still using a pencil.

May 22 2011 at 6:12 PM Report abuse rate up rate down Reply