23 May 2011

BARNES & NOBLE, THE STRONG AND SILENT TYPE

Bn

Summary

 
Last August, Barnes & Noble, Inc. offered itself for sale, succumbing to the mounting pressures of its continued decline in stock value. On Monday, May 19th it was announced that Liberty Media offered to acquire Barnes & Noble, Inc. (NYSE: BKS) at a price of $17 per share or roughly $1.02 billion, representing a 20 per cent increase over closing price.  As part of the Liberty Media offer, Barnes & Noble founder and Chairman Leonard Riggio would maintain his 30 per cent stake in the company as well as his leadership position.  The Liberty Media offer occurs at a very interesting time; for the first time since 2007, Barnes & Noble sales were up 7.3 per cent in the quarter ending in January.  Additionally, online revenue showed a 52 per cent growth over last quarter.  Barnes & Noble’s golden child, its e-reader Nook, has boosted sales, stock appeal and discussion as to the company’s future but the question remains if it is strong enough to single handedly save Barnes & Noble.       

 

The Players

 

John Malone, chairman of Liberty Media Corporation is often compared to Warren Buffet in mainstream media for his consumption of problematic media companies.  Included in the Liberty Media empire are such companies as Sirius XM Radio Inc., Starz Media Group, QVC home shopping network, Live Nation Entertainment and DirecTV Group.

 

Barnes & Noble, Inc. is the world’s largest bookseller, a Fortune 500 company and operates a book-centric business encompassing retail stores, internet, publishing, e-books and college bookstores. 

 

What it Means

 
It is without question that the book industry is suffering a rapid transformation.  Just last week Amazon (AMZN) announced that e-books surpassed regular books in the company’s sales thus solidifying the major paradigm shift in book consumption.  So too, the Ann Arbor, Michigan company Borders Group Inc., filed for bankruptcy in February and is closing stores throughout the country.  As the last man standing so to speak, Barnes & Noble is tasked with fighting to stay afloat or admit defeat.  The recent success of the Nook e-reader has boosted the potential and promise of Barnes & Noble but without an influx of cash, little can be done to compete in the digital marketplace.     

 

Discussion abounds regarding Malone’s motivation and skeptics believe he’s devaluing Barnes & Noble stock despite the fact that shares were as low as $8.45 less than one month prior to the Liberty Media offer. Although his intentions are unclear, should he acquire the company, the debate remains over the future of physical bookstores.  If the Liberty Media sale is accepted, the uncertainty of physical bookstores increases tenfold. 

 

The Communication

 

After a thorough perusal of the Barnes & Noble corporate page and social media links it is clear that little is being discussed outside of the Barnes & Noble boardroom.  Twitter, Facebook and the Barnes & Noble YouTube channel remain focused exclusively on the Nook, service issues, customer service inquiries and new releases and author interviews.  There was absolutely no mention or secondary chatter regarding the Liberty Media offer.  While current financial gurus are debating the pros and cons of the Liberty Media offer, Barnes & Noble remains adamant in their corporate communication techniques that everything is fine and business is operating as usual.  Apart from an initial press release and media statement acknowledging receipt of the offer, both parties refuse to respond or offer any insight into future plans. 

 

“The Company does not intend to comment further regarding this proposal

 or the Company’s evaluation of strategic alternatives…”

-Official Barnes & Noble Press Release, 05/19/2011

 

Reactions

 

Barnes & Noble is keeping its cards close and rightly so.  There is little corporate benefit in adding to the discussion when the publishing industry at large is offering so many opinions.  Barnes & Noble alerted investors with a perfunctory press release and is leaving all further conversation to everyone else.  Leading industry sites such as Galley Cat, Publisher’s Lunch and PW Daily offer contrasting views and are prominently featuring the discussion.  This continued coverage shows the investment of readers and the publishing community at large. 

 

The bottom line is that no one knows what will happen.  In the volatile world of book sales the worst thing Barnes & Noble could do is actively publicize the offer.  Doing so could potentially frighten current customers.  More so than ever, it is imperative that Barnes & Noble show its strength which is exactly what it is doing.  As the last man standing of physical book stores, if Barnes & Noble is purchased traditional readers everywhere will being predicting the timeline of their personal book Armageddon.