Shares of Barnes & Noble jumped 10 percent Thursday morning after the bookseller announced its intention to spin off its online operations in an initial public stock offering.
The company said it will file with the Securities & Exchange Commission for the BarnesandNoble.com IPO within 30 days, a possibility mentioned by CBS.MarketWatch.com on July 29.
At the time, Barnes & Noble executive vice president of finance Marie Toulantis acknowledged the company was considering a spin-off. "We're very well-positioned in the capital markets, and we'll be exploring all of these options with a view toward enhancing shareholder value," she said.
Mary Ellen Keating, senior vice president for corporate communications, said Barnes & Noble will continue to hold about an 80 percent ownership stake in the online unit after the IPO.
Analysts and investors had been hoping for some time that Barnes & Noble would make this move so that its online operations would be valued along the same lines as market leader Amazon.com. The pioneer Web-based bookseller's market capitalization stands at about $6.3 billion, excluding debt. That's more than Borders and Barnes & Noble combined.
According to a recent research report from Salomon Smith Barney's Maureen McGrath, Barnes & Noble could be trading about 35 percent higher if its online operations, expected to generate $100 million in sales this year, were valued like Amazon.com's.
"Its Internet business is subtracting from the stock price so you either have to convince people to look at it differently or you have to spin it off," said Bill Harnisch, president and chief investment officer of Forstman-Leff Associates, the largest institutional shareholder in Barnes & Noble.
On the news, Barnes & Noble's stock rose 2 3/4 to 40 in recent trading of 1.3 million shares.
The benefits of a Barnes & Noble spin-off would go well beyond raising money and increasing shareholder value, according to observers. "It would attract a different type of investor and give the Internet venture a little more focus, which is necessary in a fast growing and competitive market place," Ryan Jacob, portfolio manager of The Internet Fund and research director of IPO Value Monitor, said in an earlier interview.
Merrill Lynch analyst Daniel Barry wrote in a recent report that he expects BarnesandNoble.com, which kicked off its first ad campaign this April, to generate $150 million to $250 million in sales for 1999, compared to $650 million in sales expected for Amazon.com. If BarnesandNoble.com were valued only at half the multiple of Amazon, the online operations would be worth $8 to $14 a share, Barry wrote.
Written By Darren Chervitz