How much is Barnes & Noble's (BKS) chairman Len Riggio willing to pay to quash billionaire investor Ron Burkle's proxy fight for what's left of the company? Try $16.8 million. And that's not including legal fees. Riggio just exercised options to acquire 990,740 shares in the world's largest bookseller at a strike price of $16.96 -- a premium of $1.61 per share. It's actually just one more calculated grab for control.
The official party line from B&N states that Riggio's move shows that he "continues to believe B&N's stock is undervalued and this exercise of his options demonstrates his belief in the long-term strategy of the company."
But what Riggio gets by converting the options he was granted back in 2001 (hereafter known as "the good old days" when the company's value was $2.2 billion) is that he avoids triggering the "poison pill," the measure that prevents anyone from buying more than 20 percent of the stock on the open market. Otherwise known as a hostile takeover, that's what Burkle was fighting against from the beginning.
The options also allow Riggio to vote more shares which will come in handy now that Burkle's drawn his sword against the board. Burkle is demanding that the three board members up for re-election: Laurence Zilavy, Michael Del Guidice, and Len Riggio, each be unseated and replaced by three with friendlier relationships to Burkle's Yucaipa Cos.
Burkle wants to give himself a seat. To his right, he'd place Stephen Bollenbach, former CEO of Hilton Hotels and current chairman of KB Home (KBH) who served with Burkle for 15 years on that company's board. To his left, the chairman and CEO of Wheego Electric Cars, Michael McQuary, another board pal from the days when Liquid Audio was in Burkle's takeover sights.
While this complex drama of gaining control plays out in the courts, Barnes & Noble is falling victim to doomsday predictions of the death of the chain, and the prediction that independent booksellers will have the last laugh.
Brett Arends makes an alarming point at Marketwatch:
Barnes & Noble's annual filing shows that management and staff owns 5.5 million stock options, granted to them in previous years to give them an incentive to work harder and smarter. The options have an average exercise price of $20.19 -- meaning most of them, if not all, are now seemingly worthless.)
Though it's true that B&N stock is a fraction of what it was a decade ago, it's probably way too soon to shovel dirt on the company's grave. Riggio's not going to go down that easily. And though brick and mortar bookselling may soon go the way of the music stores of yore, someone is going to be selling e-books online and it may as well be B&N.
The company's online sales were up 51 percent in the fourth quarter, making B&N's predictions that in the next fiscal year, its Web sales are expected to increase 75 percent to $1 billion, very likely. And let's not forget that B&N's e-bookstore currently offers the largest selection of digital downloads.
By throwing down the gauntlet in the form of buying options, Riggio looks like an optimist -- one that's ready for battle.
Image via Wikimedia Commons CC 2.0