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Alexandra Biesada

Activist investor targets Barnes & Noble

by Alexandra Biesada | Dun & Bradstreet Editor

April 25, 2012 | 2 Comments »

April was another cruel month for troubled bookseller Barnes & Noble. First the Justice Department filed an antitrust suit against Apple and five major publishing houses, which alleges that they colluded to raise the price of e-books and stop Amazon from using deep discounts to lure book buyers. The DOJ suit is viewed as a boon for Amazon as the action could lower the price of digital books and shift the expanding market in Amazon’s favor (as if it isn’t already!). Then the jury that awards Pulitzer prizes shocked the literary world by naming no prize for fiction in 2011 (for the first time since 1977!) Booksellers, including Barnes & Noble, look forward to the award each year to drive customers to stores and spur sales.

These two unfortunate events are the latest in a flood of bad news from Barnes & Noble, as it struggles with the decline in its core bookstore business and costs associated with building its Nook digital books unit. So it came as a surprise when the company’s shares spiked more than 10% Monday, a difficult day for stocks overall. Investors were reacting to the news that Jana Partners — an activist hedge fund known for pushing companies to sell assets — had taken a 12% stake in Barnes & Noble. (Jana’s stake makes it the company’s third-largest shareholder behind chairman Leonard Riggio and Yucaipa Cos.) In January, Barnes & Noble said it was exploring a spin off or sale of its promising Nook digital books unit. The Nook, launched in 2009, is the company’s growth business and a formidable competitor to Amazon’s Kindle and Apple’s e-book platform. Without Nook, it’s fair to say that Barnes & Noble would likely go the way of Borders, which went out of business last year.

The Nook’s unlikely success against heavyweights Apple and Amazon has attracted interest from Jana and other activist investors. Founded in 2001 by Barry Rosenstein and Gary Claar, Jana recently pushed successfully for the breakup of McGraw-Hill Cos. While the hedge fund hasn’t said whether its stake is active or passive, history suggests the former.

Indeed, investors are growing impatient to unlock the value Barnes & Noble created with Nook by separating it from the dying bookstore business. Stay tuned for Jana’s next move.


Photo by Evan Krell, used under a Creative Commons license.


Investor impatience is understandable, here. A spin off would make sense, but I rue the thought of a hastened demise of the B&N physical stores. It’s a testimony to how well they execute that model that I have that feeling with their stores, but didn’t with Borders’ stores. I admit I don’t go in B&N stores often, but love going when I do. How many stores do consumers *love* to go to? Not many, I’d bet. Alas, not really much to be done about it.

My gut feeling is that if B&N spins off it’s e-books unit the rest of the company will be left for dead. But keeping the digital division tied to the dwindling bookstore business may starve it of the investment it needs to compete effectively with Apple and Amazon, while saddling B&N shareholders with continued deep losses. I believe the challenge is to figure out how best to grow the digitial division while preserving the core bookstore business. I’d hate to see B&N stores disappear entirely.

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