Updated: Barnes & Noble Gets $204 Million Investment From Liberty Media

It is not the outright buy that Barnes & Noble (NYSE: BKS) was hoping for, but *Liberty Media* is making a strategic investment of $204 million in the company, making it B&N’s third largest shareholder after Leonard Riggio and Ronald Burkle. Shares are up about 3.5 percent in after-hours trading.

*Liberty Media* purchased about 12 million shares of preferred stock, roughly 16.6 percent of the company’s stock, at a price of $17 per share. The investment was approved by Barnes & Noble’s board of directors, and, according to the release, “the parties have ceased discussions regarding Liberty’s previously announced acquisition proposal.”

Back in May, *Liberty Media* offered to buy nearly 70 percent of the chain, at $17 per share, for a total of $980 million. That offer was contingent on regulatory approval and on the continued participation of B&N founding chairman Leonard Riggio, who is the company’s largest shareholder, with 29 percent. (Burkle owns about 20 percent.) It was never clear whether Riggio would accept or reject the acquisition.

At the Allen & Co. conference in Sun Valley in July, Liberty CEO John Malone said the company was betting on the fact that Barnes & Noble could be a major competitor in the digital arena against Amazon (NSDQ: AMZN) and Apple.

In a statement today, Riggio said, “We could not have found a better strategic investor than *Liberty Media*. Their investment is a strong endorsement of our overall business and the additional capital will further fuel the explosive growth of our digital strategy.”

Greg Maffei, Liberty Media’s president and CEO, said, “We are excited about Barnes & Noble’s prospects as the leading bookseller in the US and its growth opportunities in the digital world. This investment provides Barnes & Noble with capital to grow its business on terms that are attractive for both parties and allows us to play a meaningful role in shaping their success to generate returns for our shareholders and theirs.”

Under the terms of the investment, Liberty will be allowed to nominate two members to Barnes & Noble’s board of directors, bringing the total number of board members to eleven. Liberty and B&N agreed in advance that the nominees would be Maffei and Liberty SVP Mark Carleton.

Reports have trickled out in recent days that Liberty was considering an investment in Barnes & Noble rather than an outright acquisition. FT.com reported yesterday that sources were saying “financing constraints had quieted deal talk,” and that Barnes & Noble had no other interested bidders.

Barnes & Noble is set to announce its second-quarter earnings next Tuesday on Tuesday, August 30, and presumably some more details about today’s news will be included in the investor call.

Update: Burkle, B&N’s second largest investor and managing partner of the Yucaipa Companies, issued a statement:

“While we have grave concerns about the process and the pricing we welcome Barnes & Noble gaining access to Liberty Media’s expertise. We have the utmost respect for John Malone as a great investor with a proven track record. A year ago we launched a proxy contest with the goal of bringing better corporate governance to Barnes & Noble. The addition of two world class directors like Gregory B. Maffei, president and CEO of Liberty and Mark D. Carleton, SVP of Liberty, whom we know and respect, as well as the previously appointed independent directors to the Barnes & Noble Board are positive steps towards better governance.”