Barnes & Noble Up for Sale, But Finding Buyer May Be Elusive
Barnes & Noble put itself up for sale. B&N may have a hard time finding a buyer willing to take charge of bricks-and-mortar stores struggling against surging e-book sales, analysts said. With 720 retail locations and 637 college bookstores, the company had less than $61 million cash and $510 million in debt June 30, leaving the chain with the daunting task of trying to find a buyer willing to assume risk, analysts said.
The board’s putting B&N on the block seems to signal a change of heart. Billionaire investor Ron Burkle this year unsuccessfully tried to gain control of the chain without triggering its poison pill. The poison pill, a measure typically taken to prevent a takeover, is triggered if an outside shareholder buys 20 percent of the company.
Burkle began increasing his stake in B&N a year ago and owns 19.2 percent, said a proxy statement filed Tuesday for the chain’s Sept. 28 annual meeting. Aletheia Research Management, which controls 15.9 percent of B&N, has done business with Burkle and his Yucaipa Cos. investment firm in connection with A&P Supermarkets. Burkle sued B&N this year and wasn’t pleased when it bought out B&N College, spending some cash and adding debt to the balance sheet. B&N Chairman Leonard Riggio, with a 29 percent stake, is willing to work with investors interested in bidding for the chain, he said in a written statement.
"You have these huge 50,000 square foot stores, and e-books just make it that much harder,” an analyst said. “There will be a book business for a long period of time but not enough to justify all the stores they have. It’s just a question of whether the economic model is still there."
B&N is pinning its hopes on the emerging market for digital books. The company forecast capturing 25 percent of the market by 2013. Co-CEO William Lynch projected digital books could produce $3 billion to $5 billion in new revenue. But B&N’s Nook e-reader faces stiff competition from Amazon’s Kindle and Apple’s iPad. Sales of the Kindle seem to have accelerated since Amazon cut the entry-level model’s price to $139, just below B&N’s Nook at $149, analysts said. The price-cutting signals that e-books will be ultra-competitive. Though B&N has aggressive plans for digital books, it isn’t clear that the company can become a market leader, analysts said.
Amazon accounts for 60 percent of U.S. e-book sales and has a 3 percent share of total U.S. book revenue, Goldman Sachs analyst James Mitchell wrote clients Wednesday. Amazon will increase its U.S. book sales 12 percent annually through 2015, he predicted. After spinning off Gamestop in 2004, B&N was growing 3.5 percent annually until fiscal 2009, when revenue fell 5.4 percent to $5.12 billion. B&N recently increased to 1,000 square feet the space in its stores for ebooks and e-readers.
Book publishers are relying on e-books as a new revenue source. Random House CEO Markus Dohle recently told Der Spiegel magazine that e-books contributed 8 percent of the company’s U.S. book business. Amazon disclosed that it has sold more than 1 million copies of Random House e-books by Stieg Larsson, the deceased author of the Millennium trilogy including The Girl with the Dragon Tattoo, Mitchell said. Random House may have sold 1.2 million Larsson e-books in the U.S., with Amazon accounting for 80 percent, Mitchell said.
Lynch’s fiscal 2010 annual salary rose to $812,308 from $200,000 a year earlier, B&N’s proxy said. He got a $1 million signing bonus to join the company in fiscal 2009. Lynch also was granted $11 million in stock options. Leonard Riggio was paid a $300,000 annual salary, $337,500 bonus and $60,013 in stock options. Brother and Co-CEO Stephen Riggio also was paid a $300,000 salary and he owns 4.1 percent of B&N.