Classic Info on the B&N Sale

[jhempel24]

While talking with a B&N rep, I asked about the sale, and here was the info that he gave me (it's actually based around e-Readers).

The reason for the sale, isn't really a sale, like alot of other articles, the owner and the others that started the company were rather upset about the whole "Kindle has 3 year head start" in the e-Reader business because of red tape, and the share holders being nervous about the eBook failure a few years go. They original people wanted to jump on it when Amazon did.

So they are essentially just trying to take it back and make it private again, and not a public company. They're not really trying to sell it to anyone, but just go back to being private in a round-about way.

Don't know if that's got any truth to it, but it seems like the main people are tired of the red tape of being public.

I don't know if that has been said on here before or not.

[Kali Yuga]

Sorry, but the B&N rep is spinning you.

The sale is happening because of a feud between Leonard Riggio (chairman and largest stockholder of B&N) and Ronald Burkle, an investor who is trying to take over the company, kick out current management etc.

Riggio wants to take the company private, so he can get rid of Burkle.

I don't see much point in whining about getting into the ebook business late, especially since the Nook isn't as good as it should be given its time frame.

[jhempel24]

I bet that's the line they got from the company then. I don't think guy was outright giving me false info.

[jasonkchapman]

Originally Posted by jhempel24

I bet that's the line they got from the company then. I don't think guy was outright giving me false info.

Actually, B&N's "poison pill" provision, which survived Burkle's court challenge, appears to have taken care of Yucaipa's advances.

According to a recent NYT article, yes, Riggio has expressed interest in taking B&N private again and the board seems to be with him.

[Doug Pardee]

It's hard to say what happened years ago in the executive suites at B&N. I can point to some reported facts.

B&N was a pioneer in e-books, introducing e-books for GemStar's RocketBook back in 2000. They gave up on that in 2003 after GemStar gave up on the RocketBook.

From 2003 until early this year, the CEO of B&N was Len Riggio's brother, Steve Riggio. Len (Chairman of the Board) and the Board replaced Steve with William Lynch, who had been the head of B&N's digital operations. (The Board includes Steve Riggio, who was and continues to be vice-chairman.) This move seems to have been done to give more momentum to the shift to digital.

...

Because B&N's Board adopted a "poison pill" which effectively blocks unfriendly takeovers, the Board has a fiduciary duty to the shareholders to entertain friendly takeover offers. It's not a "sale", it's a legal technicality.

...

The "red tape of being public" is something that's definitely been talked about. A public company is measured by its quarterly and annual profits. It's very difficult to make a deep change in the operation of a company without spending a fair amount of money, and that rips into the short-term profits. That, in turn, is hard on dividends and stock price.

The sad fact is that most stockholders (in any company) don't give a hoot about the company itself. They want to make money, and they want it now! If B&N were taken private, it could be more aggressive about spending some of its savings on the transition to the 21st Century. Len Riggio would like to do that, if he can put together a suitable consortium of investors.

[Kali Yuga]

Originally Posted by jasonkchapman

Actually, B&N's "poison pill" provision, which survived Burkle's court challenge, appears to have taken care of Yucaipa's advances.

That's a nice theory, but it hasn't stopped Burkle at all. They're now mired in a proxy fight, with Burkle attempting to get 3 seats on the board -- mostly in order to try and remove the poison pill provisions. Burkle is still harping on the $500m purchase of Riggio's college bookstore business and slinging lots of other mud. Apparently another company, Aletheia, has about 14% of outstanding shares and may be collaborating with Burkle.

The only way Burkle can truly be stopped is if someone buys him out, or... if the company goes private.

E.g.: http://www.latimes.com/business/la-f...,5767130.story

Originally Posted by jasonkchapman

According to a recent NYT article, yes, Riggio has expressed interest in taking B&N private again and the board seems to be with him.

Sure.... For the moment.

It's pretty obvious that Riggio wants to get rid of Burkle. Even with the poison pill provisions, Yuicapa + Aletheia = 34% of shares, or more than Riggio. Getting private equity partners and/or going private is probably Riggio's only recourse to maintain control.


At any rate, there is absolutely no connection between B&N trying to get bought out and/or go private, and the shift to ebooks. I don't know what the B&N rep actually believes, and maybe it doesn't matter what the staff is told, but it's clear that individual is not portraying the current issues accurately.

[Doug Pardee]

Originally Posted by Kali Yuga

At any rate, there is absolutely no connection between B&N trying to get bought out and/or go private, and the shift to ebooks.

There's every connection.

The shift to e-books is expensive. It would be easier to do if the company were taken private. Since the company isn't private, the cost of making the shift has pushed stock prices down, making stockholders unhappy and making the company cheaper to buy.

Ron Burkle isn't happy with the e-book shift, because it's cost him a bunch of money. If it continues, it will cost him even more money, unless he sells out now at a loss. He'd rather take control of the company and get it to quit "wasting" its money on e-books, college bookstores, and any bookstores that aren't really profitable. Burkle doesn't much care about books, e- or otherwise. He just wants B&N to stop spending money on anything it doesn't absolutely have to, so it will generate big profits for a year or so, which will in turn run the stock price way up, then he can sell his stock before B&N flames out. (You can tell I'm not a fan of Ron Burkle.)

[aagstn]

That is how it is done in America. People just want short term profits even if they have to destroy the company and the whole nations economy to do it.

[Fbone]

Is that what Ron Burkle has stated he plans to do if he's in control? Close many stores and curtail B&N's digital division?

[Kali Yuga]

Originally Posted by Doug Pardee

The shift to e-books is expensive. It would be easier to do if the company were taken private.

I see, I guess that's what stopped Amazon and Sony dead in their tracks.

Originally Posted by Doug Pardee

Since the company isn't private, the cost of making the shift has pushed stock prices down, making stockholders unhappy and making the company cheaper to buy.

Yes, I'm sure that the year-after-year drop of same-store sales, hundreds of store closures, and buying competitors (and closing some of their stores) have nothing to do with their falling stock price.

Nor do I see a private company as necessarily offering any advantages in terms of, say, getting cheaper credit. Taking the company private won't put more resources into B&N's coffers, since (if my understanding of the process is correct) those funds essentially buy out the existing shareholders.

I don't see where you're getting the idea that Burkle views the Nook as a "waste" of money, he doesn't seem to have said any such thing publicly. He's mostly harping on the favoritism management shows to Riggio.

Originally Posted by Doug Pardee

....Burkle doesn't much care about books, e- or otherwise. He just wants B&N to stop spending money on anything it doesn't absolutely have to, so it will generate big profits for a year or so, which will in turn run the stock price way up, then he can sell his stock before B&N flames out. (You can tell I'm not a fan of Ron Burkle.)

Gosh, really?

Whatever Burkle has planned, it's unlikely that skipping on the Nook / ebooks would have improved the stock price, and halting the Nook certainly won't get the price back up to where it was when he bought B&N. In fact, ebook sales are one of the few bright spots in their latest results.

I haven't seen any figures on the development costs for the Nook (have you?), and while I agree it isn't cheap, the reality is that B&N would be relegated to dinosaur status (and a lower stock price) without it.

So, while I won't say "Burkle is fantabulous," I don't see much reason to accept your view here.

[jasonkchapman]

Originally Posted by Kali Yuga

I see, I guess that's what stopped Amazon and Sony dead in their tracks.

Yes, in precisely the same way the oranges are not apples.

[Doug Pardee]

Originally Posted by Kali Yuga

Whatever Burkle has planned, it's unlikely that skipping on the Nook / ebooks would have improved the stock price, and halting the Nook certainly won't get the price back up to where it was when he bought B&N. In fact, ebook sales are one of the few bright spots in their latest results.

From New York Magazine:

Burkle is interested in Barnes & Noble’s formidable brand and its valuable real estate, but he’s not particularly passionate about books... “I think people will continue to buy books,” Burkle said. “But even if we’re wrong, Barnes & Noble will still be alive for five or ten more years. ...

Len Riggio knows where he wants Barnes & Noble to end up: in a world, perhaps just over the horizon, where selling books is profitable, whether they are physical or digital, sold in stores or online. ... People involved with the Nook’s development say Riggio threw himself into the process, and now he sees digital bookselling as the continuation of a lifelong theme.

Selling off the NOOK/e-book operation would give a bump to the stock price, both from the money taken in and the removal of the ongoing costs. Reading between the lines in the B&N Fiscal 2010 Annual Report, it looks like B&N spent somewhere around $100 million to get their e-book store and NOOK off the ground, plus more than $15 million to buy Fictionwise. Last year B&N reported a profit of $37 million, so the digital initiative seriously cut into their annual profit.

B&N is looking to spend even more than that on the digital initiative this year (Morningstar says $140 million). B&N's guidance indicates that they might break even this year except for the digital initiative and the legal costs of fending off Burkle. Add in any income from selling the digital operation, and B&N becomes profitable.