Barnes & Noble - Deal or No Deal?

[stonetools]

Hey, I've heard the rumor that Apple is interested in buying B&N. I'll believe it when they sign the checks on tv, though. Most analysts didn't buyit other.

[TimW]

Originally Posted by SensualPoet

B&N lost 9% more of its value today closing pretty much at $14. That has to be unsettling and certainly suggests the Liberty Media offer of $17 is slipping away. Technically, you could snap up shares at $14 today and, when the Liberty Media deal is signed off in a few weeks, make a cool 21% on your money. Alternately, it might also mean the deal is being discussed at a lower price or perhaps cancelling the offer altogether.

One is reminded of the deal to take over Yahoo! by Microsoft when the deal was $30 and Yahoo! said "no way". Yahoo! has since laid off more than half its staff and trades at $11. Sometimes you need to strike when the iron is hot. Granted recent events in the stock market are unusual but it is sobering. I mentioned before that Liberty Media can take its time given no one was interested in Borders ... why pay more for B&N?

Due to the volatility of the market (understatement of the year), both B&N and Liberty have lost 20% of their stock value in the last five days. This isn't an opportune time for Liberty to be lining up $1 billion worth of financing. The odds that the deal will be completed under these circumstances are not promising. "Not promising" is another understatement.

[fjtorres]

Originally Posted by SensualPoet

I mentioned before that Liberty Media can take its time given no one was interested in Borders ... why pay more for B&N?

Clearly this is not the week to be making billion dollar decisions, but at some point soon Malone is going to have to fish or cut bait. The window of opportunity to make B&N worth the investment won't stay open forever. Some of the ongoing trends suggest that it might not last much past this winter.

[SensualPoet]

Originally Posted by stonetools

Hey, I've heard the rumor that Apple is interested in buying B&N. I'll believe it when they sign the checks on tv, though. Most analysts didn't buyit other.

Not a chance. Unless one looks for heat resistant snowballs in very warm places. Apple invests in high growth, high revenue, high profit opportunities.

Originally Posted by fjtorres

Clearly this is not the week to be making billion dollar decisions, but at some point soon Malone is going to have to fish or cut bait. The window of opportunity to make B&N worth the investment won't stay open forever. Some of the ongoing trends suggest that it might not last much past this winter.

If Liberty and B&N's board haven't a formal announcement at the end of of their summer meeting, I'd say the likelihood of a deal that looks anything like the current one is remote.

[Phogg]

Its 1907.

Can I sell you my upscale livery stable in Chicago, at a bargain price?
People will always need a place to stable their horses.

[fjtorres]

If that livery services horseless carriages it might fetch a few bids.

B&N is not Borders or even BAM; they do have a viable strategy to transition to digital and are well positioned to address the academic ebook market when it materializes. They just lack the cash needed to weather the transition. That is why they need an investor with deep pockets and why livery metaphors are too facile and inaccurate.

[SensualPoet]

It's barely a week later ... and the other shoe is falling. Liberty Media is reported to having cold feet about the original offer (which B&N frittered away) of $17/share for the 70% of B&N not owned by the Riggio family. Now, Liberty leakers are suggesting raising the buyout cash is harder than expected (which is almost certainly NOT true), or perhaps it would settle for a minority interest (like the Burkle group which owns 20% and has zero influence over the board?).

Whatever ... the stock closed at $13, the lowest since the original deal was floated, and far, far below the $21 peak since the deal was verified. Today, you could make 30% on your money in a few weeks if you buy shares at $13 and believe Liberty will buy them at $17 this fall. But, hey ... I wouldn't count on it.

Rather more interesting ... B&N, although it has some irons in the fire, is in poor shape financially. It had to suspend dividends earlier this year to ensure it could pay for inventory. It is investing very heavily in Nook, spending far more than it is recovering in revenue (let alone profit). And paper sales of books are drastically down across all publishers. Meanwhile, its chief competitor Borders is closing with 50% off sales which has to be sucking the life out of summer sales at B&N until that disaster is finished (end of August, early September).

Well, "ouch", at the least, is the operative word of the day.

[Fbone]

Originally Posted by SensualPoet

Rather more interesting ... B&N, although it has some irons in the fire, is in poor shape financially. It had to suspend dividends earlier this year to ensure it could pay for inventory. It is investing very heavily in Nook, spending far more than it is recovering in revenue (let alone profit). And paper sales of books are drastically down across all publishers. Meanwhile, its chief competitor Borders is closing with 50% off sales which has to be sucking the life out of summer sales at B&N until that disaster is finished (end of August, early September).

Well, "ouch", at the least, is the operative word of the day.

The librarian at my local public library said "business" has increased 60% in 2010 as compared to 2009. Over 50,000 more items were borrowed last year than in 2009.

If this is typical everywhere, no wonder retailers are having financial difficulties.

[luqmaninbmore]

This does make for an easier argument against funding cuts for libraries.

[kjk]

Originally Posted by SensualPoet

I It had to suspend dividends earlier this year to ensure it could pay for inventory. It is investing very heavily in Nook, spending far more than it is recovering in revenue (let alone profit). And paper sales of books are drastically down across all publishers. Meanwhile, its chief competitor Borders is closing with 50% off sales which has to be sucking the life out of summer sales at B&N until that disaster is finished (end of August, early September).

Well, "ouch", at the least, is the operative word of the day.

Wow, BKS had a .25 quarterly dividend at one time!

[Kali Yuga]

FWIW, I'd say B&N will only barely survive this transitional period.

I will say they're not as bad off as Borders was, though. The proxy fights were bad, but not as bad as a revolving door spinning with incompetent managers collecting 7-figure payouts. B&N has a lot less debt and largely survived its expansionary phase. The dividend cut was obvious well over a year ago, and is better for the company's bottom line.

However, like it or not the physical stores will be a huge albatross around B&N's necks for years to come. Any bump from the Borders closings is proceeded by pain inflicted by massive sales, as the closing Borders desperately tries to unload stock.

And no, B&N is highly unlikely to expand its digital business internationally. If they can't turn a profit on domestic sales, going abroad is only going to make things worse.

The chain stores don't have all that much to recommend them. They aren't distinctive or specialized like an indie stores can be; they can't compete with the big box stores on prices for best sellers; they can only carry a fraction of what's available online.

They may well survive with the Nook, college stores, online and a smaller number of marquee stores in high-profile locations. But if they do, they'll wind up a shadow of its past life as the 800 pound gorilla of the book biz.

[fjtorres]

Deal or no deal?
Motley fool thinks "no deal":
http://www.fool.com/investing/genera...-weakness.aspx

[luqmaninbmore]

Originally Posted by fjtorres

Deal or no deal?
Motley fool thinks "no deal":
http://www.fool.com/investing/genera...-weakness.aspx

Their analysis is interesting, but I'd be careful about trusting anything from that website:

http://daltonr.wordpress.com/2007/06...nt-fooling-me/

http://www.obliviousinvestor.com/dont-be-a-motley-fool/

http://pennyfoolish.blogspot.com/200...mail-from.html

[Kali Yuga]

Ehh, I wouldn't discount MF because of a few gripes.

That said, it's best to keep in mind that they are a site for small-fry equity investors. They're focusing on whether B&N's stock is worth buying rather than its future business prospects.

[astrodad]

Originally Posted by luqmaninbmore

Their analysis is interesting, but I'd be careful about trusting anything from that website:

http://daltonr.wordpress.com/2007/06...nt-fooling-me/

http://www.obliviousinvestor.com/dont-be-a-motley-fool/

http://pennyfoolish.blogspot.com/200...mail-from.html

I've had HUGE success with MF. But back to the original topic...

I hope that a deal is struck so that B&N can stay afloat during the transition. They have smart people running the company and I'm hoping the best for them.