Bankrupt Borders needs a sale the most but Barnes & Noble (NYSE: BKS), which put itself in play last August, is the book retailer with a serious suitor — and they don’t come much more serious than John Malone. The company’s board announced late Thursday afternoon that Liberty Media (NSDQ: LINTA) has offered $17 a share, roughly $980 million, for the chain. The bid represents a 20.4 percent premium over today’s closing price of $14.11; the stock is up sharply after hours on the news — up 18.5 percent to $16.73.
This isn’t a slam dunk. In addition to the usual regulatory approval, according to the board’s statement, the proposal states that any deal “is contingent on the participation of founding chairman Leonard Riggio, both in terms of his continuing equity ownership and his continuing role in management.” At this point, the proposal has yet to be reviewed by the special board committee formed to vet possible deals and strategic proposals. The board is being advised on the financial side by Lazard Freres & Co., LLC and on the legal end by Morris, Nichols, Arsht & Tunnell LLP.
B&N is the world’s largest bookseller, with 705 stores across the U.S. and 636 college bookstores operated through subsidiary Barnes & Noble College Booksellers. More important, the company has created a substantial digital business by developing its own e-reader and operating e-bookstores for itself and others. B&N claims that its e-reader, the Nook, has 25 percent of the e-book market. In its last earnings report, sales for BN.com increased 64 percent year over year.
In some respects, Liberty Media would be a very good fit. The company already owns or has stakes in companies in media and electronic retailing, as well as communications and entertainment, including Starz, Sirius XM (NSDQ: SIRI), QVC and Expedia. Its investments can be hit or miss. For instance, Liberty went heavily into original movie productions, only to pull back when results didn’t come close to expectations. Malone, the chairman, and CEO Greg Maffei are not big fans of buying high so it’s unclear how much room might be left under the ceiling for B&N.
Update: A little clarity from Liberty via a late-evening statement. For its $1 billion or so, Liberty proposes to buy roughly 70 percent of the equity in Barnes & Noble. The deal values B&N at
Roughly half of the all-cash deal would be financed with the rest, about $500 million in cash, coming from Liberty. The equity would be held in its Liberty Capital and the deal would be structured as a merger. (That is probably the most advantageous move in terms of taxes given the way Malone usually operates.)
Why would Malone and Co. buy a controlling stake in Barnes & Noble? Here’s the closest Liberty comes to an answer:
Barnes & Noble is the established leader in bookselling and is at the forefront of the transition to digital, with a management team that has demonstrated expertise in operations and positioned the company for growth in a dynamic marketplace.
Put another way, Like satellite competitor Charlie Ergen, who surprised observers by acquiring Blockbuster (NYSE: BBI) from bankruptcy court for Dish Network (NSDQ: DISH), they are looking primarily at the part of the business that is growing and believe they can take advantage of the existing bricks-and-mortar business while managing a transition. Why not Borders, which could be acquired at the same kind of discount or possibly better? Borders lags in digital strategy and lacks its own e-reader brand, relying instead on Kobo. B&N has spent the time since its board first announced a strategic review building on its Nook strategy with the color device and enhancing its Android capability.
Click on the chart below to see the diverging fortunes of Amazon (NSDQ: AMZN), Barnes & Noble, and Borders’ stocks over the last five years. Barnes & Noble stock has lost more than half of its value, while Amazon is up 500 percent: