Barnes & Noble's Risky Buyout (Update 1)
Updated to include closing share prices and Barnes & Noble comments
NEW YORK (TheStreet) - Barnes & Noble(BKS) chairman Leonard Riggio said in a regulatory filing on Monday that he plans to buy the book seller's retail outlets and its Barnesandnoble.com Web site, in a deal that leaves investors praying for a long-expected spinoff of the company's burgeoning e-book and tablet business, NOOK Media.
Riggio's proposed take-private of Barnes & Noble bookstores -- still the lion's share of the company's revenue -- may give support to its stalled share price and help with an eventual spinoff of its Nook unit.
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Still, the deal's the exact opposite of Barnes & Noble's proposal to spin Nook off just over a year ago, which many expected could give its shareholders a payout after years of under performance.
Riggio's proposal may raise the prospect of a fire sale of the company's staple bookstore business, just when it is needed as ballast to support Nook or its prospective divestiture.
Given the relatively stable performance of Barnes & Noble bookstores through 2012 and a deterioration in the outlook for the Nook business through this holiday season, investors might want to question the reversal of course, amid a weak track record by chairman Riggio in creating value for investors.
After rising nearly 30% in pre-market trading, Barnes & Noble shares have since faded to gains over 11% to $15.06 in Monday trading, erasing the company's year-to-date share losses.
In January of 2012, Barnes and Noble proposed that the company spin off its Nook tablet unit, in a move that could have unlocked the value of the e-book and tablet business for shareholders, while also helping the company to refocus on the retail bookstores at the heart of its earnings and cash flow.
"We see substantial value in what we've built with our Nook business in only two years, and we believe it's the right time to investigate our options to unlock that value," said CEO William Lynch in January 2012.