Barnes & Noble - Deal or No Deal?

[fjtorres]

Well, Liberty Media just voted their wallet:
http://www.marketwatch.com/story/bar...k=MW_news_stmp

Verdict: yes, B&N is worth investing in--no, it's not worth buying outright.

Should keep'em around for a Third Nook generation, at least.

[SensualPoet]

Some deal. The stock closed today at $12; Liberty agreed to paid $17 for fresh shares ... but, wait ... not common shares ... shares that carry a preferred dividend of 7.75% ... meaning they earn 7.75% of their money annually AND own almost 17% of the company. It also buys Liberty Media two directors on the board which is two more than Ron Burkle, who wanted three directors and has zero even though his group owns 20% of the company (slightly diluted as of this new investment).

It's good for B&N in medium term, however, because it gets $204 million in cash added to the corporate treasury and that can help fund some serious Nook development / expansion.

[Fbone]

Annual dividend rate of 7.75% for Liberty Media. That isn't very good for B&N.

[SensualPoet]

Originally Posted by Fbone

Annual dividend rate of 7.75% for Liberty Media. That isn't very good for B&N.

But, that's how these deals get done. The alternnative would be to leave B&N twisting in the wind. And, B&N gets the cash, not current shareholders, so it gets put to use. And though it pays a quarterly dividend, it's cheaper than a loan and doesn't have to be paid back.

[TimW]

Originally Posted by Fbone

Annual dividend rate of 7.75% for Liberty Media. That isn't very good for B&N.

B&N stock prices have declined another 10% this morning. For the time being, the market seems to agree with you.

Edit: ...and 7% more this afternoon. Ouch!

[Fbone]

Originally Posted by TimW

B&N stock prices have declined another 10% this morning. For the time being, the market seems to agree with you.

Edit: ...and 7% more this afternoon. Ouch!

Not unexpected. B&N can not afford those terms. They will have to borrow money to pay the dividend.

On the other hand the two seats LM adds to the Board may be helpful in turning the company into a profitable one. Interestingly, the retail stores are profitable but the BN.com (incl digital) is not. Which may indicate B&N is spending a lot of resources on R&D or is expected to. Could there be further devices or expansion in the future?

[SensualPoet]

Originally Posted by Fbone

Not unexpected. B&N can not afford those terms. They will have to borrow money to pay the dividend.

No; they cancelled the dividend since end 2010. Much cheaper.

The stock closed at $9.98 ... which is around where it was trading shortly before the Liberty Media offer was put on the table in May.

Liberty Media's 12 million preferred shares pay 7.75% annually regardless of share price; and if/when the share price trades over $17, they can swap for common shares, lose the dividend but pocket the capital gains over $17.

In 2007, the share price was trading about $43 so, if it got there again, LM could swap its preferred shares for common shares and pocket $312 million in sheer profit over and above recouping its original $204 million investment.

Could Nook drive Barnes and Noble to those heights? Tidy profits if Liberty Media has been on the right side. In the short run, their $204 million investment earlier this week is now worth $120 million ... or about $45 million loss per day.

As I posted earlier in this thread ... ouch.

[Fbone]

Originally Posted by SensualPoet

No; they cancelled the dividend since end 2010. Much cheaper.

I was referring to Liberty Media's dividend. This has to be paid out regardless of future profit/loss.

It would be interesting to know where specifically in BN.com the losses occurred.

[markbot]

Originally Posted by fjtorres

Well, Liberty Media just voted their wallet:
http://www.marketwatch.com/story/bar...k=MW_news_stmp

Verdict: yes, B&N is worth investing in--no, it's not worth buying outright.

Should keep'em around for a Third Nook generation, at least.

This is a pretty bad sign for B&N. After doing due diligence, Liberty Media...which is run by John Malone (a very sophisticated and successful investor) concluded that it didn't want to purchase B&N at $17 per share. Liberty is doing an investment instead. It did a convert to protect downside also. It just shows a low level of confidence in the business model. Perhaps, Liberty wanted to renegotiate for a much lower price, but the board rejected it...in the long run I think the board will be shown to have made a mistake.

I was actually really surprised Malone was even interested in this company to begin with...the digital strategy is working, for now....the thing is that the more successful digital is the more likely the B&M legacy is doing poorly.

Bricks & Mortor big box book stores are gone within 5 years.

[fjtorres]

Originally Posted by markbot

Bricks & Mortor big box book stores are gone within 5 years.

At last word, the over/under is more like 3 years.

[SensualPoet]

Originally Posted by Fbone

I was referring to Liberty Media's dividend. This has to be paid out regardless of future profit/loss.

It would be interesting to know where specifically in BN.com the losses occurred.

Sorry, I misunderstood. I am less pessimistic and believe this is a pretty decent deal for all concerned.

The preferred dividend will cost about $4 million per quarter out of cash flow which, if they had to finance some other way (corporate bonds) would almost certainly cost B&N much more. B&N generates around $2 billion in gross revenue each quarter -- so peeling off $4 million isn't that difficult.

B&N meanwhile gets $204 million in unencumbered cash today to spend to accelerate whatever holiday selling season plans they have. Maybe this means being able to double their factory orders of Nooks in time for November delivery and double the advertising spend as well; maybe it also allows them to tart up their store locations with more elaborate "try me" Nook stations or hire more holiday personal actually trained to sell the devices.

They get a direct, committed relationship with John Malone and Liberty Media: they'll have "skin in the game" and will be looking for synergies among LM properties that can be flogged within the Nook and larger B&N space. I can imagine Nooks having some big QVC sales timed for the holiday, and post-holiday, season.

And it helps put a floor under B&N's somewhat precarious financial woes, giving them another year at least to execute their digital transition.

It's arguably the best of all worlds for B&N, Nook, Liberty Media and patrons of B&N who want B&N to survive into the longer term. This provides the ingredients for a soft landing and reimagining of the enterprise. It's also the best possible outcome for the Riggio family.

[OtterBooks]

I was with a friend today who decided he wanted to buy a specific book. We drove around a bit and could only think of two bookstores, both Barnes & Nobleses, and they were across town. City with a population of a million people and we could think of two bookstores that were still in business. Guess he will just have to wait a single day for it to be shipped via Amazon Prime. Haha, take that, bookstores.