Barnes & Noble shares soar on sale speculation
Barnes & Noble Inc. stock was riding high a day after the world’s largest bookseller said it might put itself up for sale amid struggles against stiff online competition and aggressive takeover moves by a major shareholder.
Barnes & Noble shares soared 19%, or $2.47, to $15.31. The stock had plunged more than 40% in the last three months.
Many analysts said the sale would be a good idea, though others were guarded because of concerns about the company’s attempt to transition into e-books and digital readers with its Nook device. Barnes & Noble has been dealing with cheap Internet pricing for books and competition from Amazon.com’s Kindle and Apple Inc.'s iPad.
Goldman Sachs analysts upgraded the company from their sell list to neutral, saying that there was a 30% probability of a sale going through.
But they noted in a report Wednesday that Barnes & Noble’s digital push was an expensive maneuver that could jeopardize in-store sales. Financing a sale and finding bidders could also be difficult, they said.
“We do not see compelling value in the business,” the analysts wrote.
Still, going private would free Barnes & Noble from paying more than $55 million a year in dividends, said Peter Wahlstrom, an analyst with Morningstar. The company could use the cash to speed up its digital investments. In the meantime, it could close and downsize stores and cut back on inventory.
“A buyout makes sense,” Wahlstrom said in a report Wednesday.
Analysts have been estimating a sale price for the company of between $16 and $21.50 a share.
Chairman Leonard Riggio, the company’s principal stockholder with a roughly 30% stake, said Tuesday that he might join an investor group to purchase the company. His brother Stephen is chief executive.
“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,” Leonard Riggio said in a statement.
But a Riggio sale would likely encounter accusations of a sweetheart deal or a conflict of interest, said Ryan Thomas, a partner in Nashville law firm Bass Berry & Sims’ corporate and securities practice.
“Any transaction with an insider is going to be inherently suspicious and will be closely scrutinized,” he said.
Leonard Riggio has long been at odds with one of Barnes & Noble’s major shareholders, Los Angeles billionaire Ron Burkle, who holds a 19% stake and has criticized the Riggio family for trying to entrench itself at the helm of the company.
Burkle, who already has an eclectic investment portfolio and a collection of famous friends, has said that he intends to eventually amass a 37% stake in the book chain.
Alarmed, Barnes & Noble instituted a shareholder rights plan that prevented any individual from acquiring more than a 20% stake without approval from the board. Burkle, who is considering nominating three directors for the company’s board, sued the company in a Delaware court in May to get rid of the poison pill plan.
Burkle and Riggio didn’t respond to calls for comment.
Forrester Research analyst James McQuivey said that if Barnes & Noble attempts to sell itself, the company could end up alienating its “multichannel buyers” — consumers who both download digital books to the Nook reader and purchase hard copy books in its store.
“It’s really starting to be clear that bookstores are, if nothing else, a very valuable way to promote e-readers and e-books,” McQuivey said. “That’s going to be a tail that’s wagging the dog pretty forcefully in the next couple of years. Trying to sell the enterprise at this point is a risky move.”