Microsoft Nook Deal: Winners & Losers (Update 1)
The partnership sees Microsoft and Barnes & Noble teaming up to form a joint venture for the NOOK tablet, bringing together Barnes & Noble's digital and college businesses.
The tablet market has been dominated by Apple's(AAPL) iPad, but the joint venture makes Barnes & Noble a formidable player in the space. This could also impact other tablet players who aren't used to going up against the marketing muscle of Microsoft and Barnes & Noble.
Here are the winners and losers from today's announcement:
Barnes & Noble: Winner
Barnes & Noble is the obvious winner here, with shares soaring some 90% on the back of this news. The partnership values the retailer at $1.7 billion, and still allows Barnes & Noble to own 82.4% of the new company, tentatively titled 'Newco' in the companies' statement.
The deal also allows Barnes & Noble to spin off its NOOK business, which it had previously talked about doing , and get a $300 million cash infusion from a strategic partner that has far greater marketing and advertising muscle.
"The two companies agreed on a valuation for "Newco" that was a shade over 2x the market cap of Barnes & Noble before the deal, telling me little is expected from the Barnes & Noble retail assets in the future, which is kind of intriguing as it could be viewed as undervaluing the entire company," wrote Real Money contributor Brian Sozzi.
Barnes & Noble CEO William Lynch was excited about the deal, as it expands the NOOK's customer base. "Microsoft's investment in Newco, and our exciting collaboration to bring world-class digital reading technologies and content to the Windows platform and its hundreds of millions of users, will allow us to significantly expand the business," Lynch said in the press release.
"NOOK has several years runway, and it gives
Apple dominates the tablet space, selling new iPads as fast as it can make them. Microsoft wants a piece of this action.
The software giant's $300 million investment breathes new life into Barnes & Noble, while getting Microsoft closer to a company already established in the tablet market.
The partnership starts off with a NOOK app for Windows 8, but there is the potential for much more. The NOOK runs on a modified version of Google's(GOOG) Android operating system, and there's the possibility for Microsoft to bring Windows 8 to the NOOK, thought that may not happen soon.