by Jim Milliot in Publishers Weekly
Aug 03, 2010
Late Tuesday afternoon, the board of directors of Barnes & Noble announced that it was considering a sale of the nation’s largest bookstore chain. In an announcement, the B&N board said that in a bid to increase shareholder value it was exploring all strategic alternatives. Despite undertaking a number of new initiatives, including plans to invest $140 million to expand its digital sales capabilities, B&N’s stock price has performed poorly and the board said it believed its shares are “significantly undervalued.” At the close of trading Tuesday, and before the announcement, B&N’s stock price was selling at $12.84 per share, down from a 52-week high of $28.78.
There has been growing speculation that with its low stock price and trouble with outside shareholder Ron Burkle, B&N chairman Len Riggio would look to take the company private. In the B&N announcement, Riggio said he was considering the possibility of taking part in an investor group to acquire the company. In a statement, Riggio stated: “I fully support the Board’s decision to evaluate strategic alternatives at this time. Regardless of whether I participate in an investment group that buys the company, I, as well as the entire senior management team, am willing and eager to remain with the company and see it through the challenging years ahead.”
The B&N board has been engaged in a fight with Burkle over a poison pill provision it passed following Burkle’s acquisition of a significant stake in the company. Burkle sued to have the pill removed and a trial was held in July and a ruling could come at any time. Burkle has been pressuring B&N to take steps to improve the company’s stock price. In late June B&N held an investors conference at which it outlined a series of steps it planned to take to grow the company. Higher sales of e-books and the Nook as well as increased sales of print books through B&N.com are at the heart of B&N's strategy, although the company said it viewed its traditional bookstores as key assets and did not expect to close a significant number in tbhe near future. The presentation, however, did little to improve B&N's stock price with some analysts worried that B&N was investing too heavily in digital at the expense of profits, while others questioned how long bricks-and-mortar stores will remain viable.
The special committee named to review B&N’s options consists of four independent directors: George Campbell Jr., William Dillard, II, Margaret Monaco and Patricia Higgins. Lazard has been selected to serve as its financial advisor and Morris, Nichols, Arsht & Tunnell LLP to serve as its legal advisor. B&N said there was no timetable on how long the review process may take. The company was to hold its annual meeting in September, but no firm date has been set.\
Story in LA Times.
The Barnes & Noble Update
Following yesterday's after-market news that the board of Barnes & Noble will explore "strategic alternatives," the company's shares are experiencing the anticipated heavy trading volume this morning, with volume of nearly 3 million shares in the first hour alone. At that point, the stock was up approximately 20 percent over yesterday's close.
After the board boosted the stock's prospects, Goldman Sachs thoughtfully upgraded their rating from sell to neutral, and changed their 12-month price target from $12 a share to $15 a share. Analyst Matt Fassler still hates the company and they "do not see compelling value in the business," but since the market may prove them completely wrong, they postulate a 30 percent probability of a leveraged-buyout going through at $21.50 a share, or $1.388 billion.
Credit Suisse says "it's difficult to envision a buyer of this company given the structural issues it continues to face. We view the announcement as possibly an attempt to quell some of the corporate governance concerns raised by Ron Burkle and perhaps a way to explore if any outside interest actually exists. Unfortunately the purchase of the College Book stores took away the low EV/EBITDA multiple and the excess cash flow." CS sticks with their rating of underperform.
Analysts missed the earnings shortfall in June, which prompted the big drop in share price, and missed anticipating the board's announcement as well, which can't make them happy. Indeed, "people familiar with the matter" confirm to the WSJ that the steep drop in share price since the company's warning on lower profits (after a consistent slide for much of the year) "caused the board to decide over the last month that it should explore a possible sale of the company, which is now in the early stages."
There is a lot of strange speculation and thin reasoning out there today on what all of this means, but the same WSJ article contains one of the best-reasoned observations from Kobo ceo Michael Serbinis: "Going head to head with Amazon and trying to become a different company with the same investor base is tough. Going private would enable them to transfer the business without the pressure of quarterly earnings. It's hard to make the transition that they are trying to make under the constant eye of the market," which is focused on earnings and growth, quarter by quarter.
We also have an extensive analysis piece today in Lunch Deluxe and at PublishersMarketplace only, puncturing the common reasoning on some of the potential bidders for Barnes & Noble, and explaining in detail the most likely financial scenario ahead.