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B&N's For Sale, But Even a Bargain Isn't Bringing in Buyers

What's a retailer to do when it runs out of "strategic alternatives" to breathe new life (and capital) into an ailing business and boost its value for stockholders? Barnes & Noble (BKS) is facing this dilemma as time runs out on its quest to find a buyer to take the company private. Unnamed sources with knowledge of the negotiations say seven potential buyers lost interest after the first round of bidding along with private-equity firms and strategic bidders.

Though the auction will continue for at least several more weeks, it would take an intrepid investor -- one who really believes he or she can change the future of bookselling -- to plunk down the cash for the country's largest bookstore chain. So what's to become of B&N?

Business as usual
Since it went on the block in August, B&N has withstood a battery of hits despite its seemingly advantageous position in the wake of Borders (BGP) bankruptcy filing. Indeed B&N boldly claimed it would snap up sweet deals on vacated Borders stores to expand its brick-and-mortar presence. CEO William Lynch touted the profitability of B&N's stores even though sales of physical books continue to slump. At the same time, Barnes & Noble ditched its dividend, allegedly to pump more cash into its high growth digital strategies and "take advantage of any other market opportunities that may present themselves."

Indeed, at the annual South By Southwest Interactive Festival in Austin this month, Barnes & Noble played the opportunist card to run the South By bookstore, the venue where every author presenting at the conference held signings and special appearances. No word yet on how much revenue the pop-up shop rang up. However, it was smart of B&N to grab the spotlight as the only book, CD, and DVD seller at the show, which had record attendance (nearly 40,000 registered).

Stockholders don't seem convinced, and heavy trading cut B&N's share prices nearly in half over the past three weeks, down to less than $10 -- well below B&N's offering price in 1993. What's a bigger concern is that B&N execs VP Development David Deason and CIO Christopher Troja unloaded 1,206 and 1,785 shares each on March 20, when the stock price was still at a record low of 8.89.

Riggio back in the owner's seat
If there are no takers, it may trigger a reclaiming of the company by its chairman and majority stakeholder Leonard Riggio. While he owns 17.9 million shares of Barnes & Noble stock -- 29.9 percent of the shares outstanding -- Riggio has more than a big financial investment at stake. As the company's founder, he's clocked nearly fifty years of his career growing the business from one original store in New York City into a Fortune 500 company that operates 720 bookstores and 637 college bookstores.

It had to be tough for Riggio to go public initially, but it was necessary given B&N's exponential growth (and subsequent debt load) thanks to rapid expansion and its development of superstores.

Even though B&N is a public company, Riggio's inexorable tie to the brand -- his family's business -- is palpable. Witness how hard he fought against billionaire investor Ron Burkle, who snapped up about 18 percent of the company last year and was looking for more. Riggio took the financial hit (and came out on top) when Burkle dragged that battle into court.

No matter who winds up in the owner's chair, one thing is for sure: as the country's largest brick-and-mortar bookseller, B&N needs to leverage its physical assets quickly in order to keep pace with its ever-burgeoning online sales.

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