Selling Barnes & Noble: "Strategic Alternatives" Are Just Another Way to Say We Want it All
To the shock of the publishing industry -- and the delight of Wall Street -- Barnes & Noble (BKS) announced it's considering "strategic alternatives" to boost value for stockholders. And while the world's largest bookseller casually suggested one alternative was a possible sale of the company, it's more likely a calculated move for B&N to go private.
Assuming that B&N's got enough capital to float after the cost of going private, this could be a best-case scenario for its majority stakeholder Leonard Riggio, who currently owns 17.9 million shares of Barnes & Noble stock, or 29.9 percent of the shares outstanding.
Riggio's got more than a big investment at stake. As its founder, he's invested nearly fifty years to grow the business from one store in New York City into a Fortune 500 company that operates 720 bookstores and 637 college bookstores under its subsidiary Barnes & Noble College Booksellers, LLC.
It had to be tough for Riggio to go public (which he did in 1993 at $10 per split-adjusted share) but it was a necessary measure given B&N's exponential growth (and subsequent debt load) thanks to rapid expansion and its development of superstores.
But going public was fated to happen again. B&N was still growing its bricks and mortar business during the nascent phase of the internet. Indeed, while Amazon (AMZN) came along in 1995, B&N was a little late to that party, introducing its e-commerce side as a private enterprise, first through an exclusive deal with AOL in 1997, and then independently. Two years later, Barnes & Noble and then-partner Bertelsmann AG (the current owner of Random House) took barnesandnoble.com public, selling 18 percent of the company in exchange for a handsome infusion of $421.6 million.
Through expansions and divestments, one thing has remained constant: Riggio's inexorable tie to the brand (even his brother Steve Riggio is vice chairman of Barnes & Noble, Inc. and also serves as a member of the company's board of directors). So it's no surprise that Riggio fought hard against billionaire investor Ron Burkle, who snapped up about 18 percent of the company last year. Burkle argued for changes in Barnes & Noble's corporate governance (he wanted his Yucaipa Companies to be allowed to buy up to 30 percent of stock) and went so far as to drag that battle into court last month.
Though Burkle testified in court at the time that he didn't have designs on buying the company, no doubt Riggio wants to eliminate the specter of the grocery store magnate from his book business. Burkle certainly has the money and the tenacity to do it.
Others speculate that Amazon is a potential buyer and that consolidation would do the entire industry a world of good. Amazon's certainly got the upper hand revenue-wise, and the company's valued at $55 billion as opposed to B&N's $950 million. Unfortunately, such a move also has the potential to draw legal fire.
Back in 1998, the American Booksellers Association (ABA) and 26 independent booksellers filed suit against B&N claiming that it (and Borders) had violated antitrust laws by demanding publishers offer "illegal and secret" discounts based on the size of their buys.
A similar suit arose later that year when B&N was about to purchase Ingram, a major book distributor. In April 2001, the ABA finally announced that it had settled with Barnes & Noble for the not insignificant amount of $4.7 million.
I suspect neither Riggio, nor the shareholders want to play courtroom drama with Burkle and potentially lose even more money for the chain. Especially because of B&N's investment in its digital strategy is already paying off: B&N's online store saw a sales bump of 51 percent in last quarter and 32 percent the quarter before that -â€" the kind of numbers B&N enjoyed during the expansion era of the early 90s. In the next fiscal year, Web sales are expected to increase 75 percent to $1 billion. And let's not forget that B&N's rival e-reader Nook, was outselling the Kindle in its first month on sale and B&N's e-bookstore currently offers the largest selection of digital downloads.
Numbers like that should also end and speculation that B&N's going out of business any time soon. In fact, it may be that such sales increases will allow the company to invest further in e-book initiatives and innovative hybrid models of commerce.
Images via Flickr user Yodel Anectodal and B&N.com
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