The Wall Street Journal
Barnes & Noble Inc., put itself up for sale Tuesday, succumbing to pressure from shareholder activists as digital books erode the traditional business of the nation's largest bookstore chain.
The New York-based company said a falling stock prompted its board to consider all "strategic alternatives, including a possible sale."
The company said Leonard Riggio, its founder and chairman, is contemplating forming an investor group to buy Barnes & Noble, whose 720 namesake stores are a fixture in American cities both large and small. It sells approximately 300 million books annually.
A few years ago, such figures represented a fearsome retailing force, attracting ire of rivals and publishers who fretted that one company controlled the country's book-reading tastes. Since then, it has been hobbled by larger technological forces, with books becoming mere digital files, peddled by anyone with an Internet connection.
"Anybody with their eyes open knows that the retail book market is increasingly challenged," said Mike Shatzkin, chief executive of Idea Logical Co., a New York consulting firm. Each new report that shows e-book sales are growing more rapidly than expected only intensifies the problems facing the bookstore chains, he said.
Today, Barnes & Noble has a market capitalization of just under $950 million—even after a 25% run-up in after-hours trading Tuesday in the wake of the announcement. In comparison, chief competitor Amazon.com Inc. has a market cap of around $55 billion. In 2001, Barnes & Noble was worth $2.2 billion and Amazon $3.6 billion.
In a prepared statement, Mr. Riggio said he supported the board's decision. He was unavailable for further comment, and a spokeswoman for the company said that it would have no further comment on the situation.
"Going head to head with Amazon and trying to become a different company with the same investor base is tough," said Mike Serbinis, CEO of Kobo Inc., an online digital-book seller in Toronto. "Going private would enable them to transform the business without the pressure of quarterly earnings. It's hard to make the transition that they are trying to make under the constant eye of the market."
The sales process won't mean much for consumers right away. But a new owner may have a different strategy, potentially trimming the number of outlets as profits slide. Over the past three years, Barnes & Noble's annual profits have slid from $135.8 million to $75
In a prepared statement, Mr. Riggio said he supported the board's decision. He was unavailable for further comment, and a spokeswoman for the company said that it would have no further comment on the situation.
"Going head to head with Amazon and trying to become a different company with the same investor base is tough," said Mike Serbinis, CEO of Kobo Inc., an online digital-book seller in Toronto. "Going private would enable them to transform the business without the pressure of quarterly earnings. It's hard to make the transition that they are trying to make under the constant eye of the market."
The sales process won't mean much for consumers right away. But a new owner may have a different strategy, potentially trimming the number of outlets as profits slide. Over the past three years, Barnes & Noble's annual profits have slid from $135.8 million to $75.9 million to $36.7 million.
The 69-year-old Mr. Riggio currently owns 17.9 million shares of Barnes & Noble stock, or 29.9% of the shares outstanding, making him the largest individual investor.
Mr. Riggio's once-tight grip on the company has come under serious challenge in recent months after investor Ronald Burkle acquired just over 19% of Barnes & Noble's stock. Another investment firm, Aletheia Research & Management has also been amassing the stock and now owns nearly 16%.
The move sets up a potential showdown with Mr. Burkle, who objected to Barnes & Noble's acquisition of a privately held college bookstore unit from Mr. Riggio. Today that business has 637 stores. Mr. Burkle also indicated he may nominate rival board directors this year, potentially unseating Mr. Riggio himself.
Mr. Burkle is also a potential buyer for the chain, as he said he is interested in purchasing additional shares and has talked about Barnes & Noble's uniqueness as a retailer, people familiar with the matter said.
Mr. Burkle's office didn't return calls seeking comment.
Possible buyers for the retailer are private-equity firms, people familiar with the matter said. Barnes & Noble still has a strong brand name that would make an attractive purchase, especially if bidders see potential in its digital strategy, they said.
One literary agent, Laurence Kirshbaum, noted that the "assumption is that they have sufficient working capital to do what they need to do, post any buy-out." However, he added that there are many imponderables, including the final cost of going private.
In late June, Barnes & Noble sounded a warning note, saying that future investments in digital technology, sales and marketing would have an impact on profits in 2011. Over the course of the following month, its stock fell to $11.95 from $16.23. That drop caused the board to decide over the last month that it should explore a possible sale of the company, which is now in the early stages, people familiar with the matter said.
In after-hours trading, Barnes & Noble shares climbed 25% following the company's announcement. The shares have a 52-week high of $28.78. In trading on the New York Stock Exchange on Tuesday, shares had closed at $12.84, down 98 cents, or 7%.
Mr. Riggio launched his first bookstore in New York City in 1965, and six years later acquired Barnes & Noble Inc., which then consisted of a single store. He then used a discount strategy focused on new best-sellers to help spark the growth of the hardcover format.
Intent on additional growth, Mr. Riggio acquired the mall-based B. Dalton Booksellers and then in the early 1990s began to focus on building superstores. Today Barnes & Noble is present in virtually all of its biggest communities and many of its smallest, its stores often serving as community centers where book clubs meet and parents bring their children for story reading
Barnes & Noble last year made significant investments in digital bookselling, including the launch last summer of its own e-bookstore, followed by the unveiling of its Nook e-book reader. But the fast-growing digital landscape is increasingly crowded. Amazon.com Inc. grabbed an early advantage with its Kindle e-reader, introduced in November, 2007. Then earlier this year, Apple Inc. launched its iPad tablet, as well as an electronic book store. Apple has now sold more than 3 million iPads, and has claimed a share of the fast-growing digital books marketplace.
Borders Group Inc., the nation's second largest bookstore chain as measured by revenue, jumped into the e-book business earlier this year, and Google Inc. is expected to soon launch its own e-bookstore, Google Editions.
Mr. Shatzkin, of Idea Logical, said Borders recently acquired a new investor and recapitalized, and that this may have had an impact on the Barnes board as well. "Starting with the iPad, everything that is moving things to e-books faster is bad news for bookstores," he said. "Borders has bought more time. At the same time, Barnes is in a battle with a very powerful guy, and that's draining cash and energy as well."
The New York-based company said a falling stock prompted its board to consider all "strategic alternatives, including a possible sale."
The company said Leonard Riggio, its founder and chairman, is contemplating forming an investor group to buy Barnes & Noble, whose 720 namesake stores are a fixture in American cities both large and small. It sells approximately 300 million books annually.
A few years ago, such figures represented a fearsome retailing force, attracting ire of rivals and publishers who fretted that one company controlled the country's book-reading tastes. Since then, it has been hobbled by larger technological forces, with books becoming mere digital files, peddled by anyone with an Internet connection.
"Anybody with their eyes open knows that the retail book market is increasingly challenged," said Mike Shatzkin, chief executive of Idea Logical Co., a New York consulting firm. Each new report that shows e-book sales are growing more rapidly than expected only intensifies the problems facing the bookstore chains, he said.
Today, Barnes & Noble has a market capitalization of just under $950 million—even after a 25% run-up in after-hours trading Tuesday in the wake of the announcement. In comparison, chief competitor Amazon.com Inc. has a market cap of around $55 billion. In 2001, Barnes & Noble was worth $2.2 billion and Amazon $3.6 billion.
In a prepared statement, Mr. Riggio said he supported the board's decision. He was unavailable for further comment, and a spokeswoman for the company said that it would have no further comment on the situation.
"Going head to head with Amazon and trying to become a different company with the same investor base is tough," said Mike Serbinis, CEO of Kobo Inc., an online digital-book seller in Toronto. "Going private would enable them to transform the business without the pressure of quarterly earnings. It's hard to make the transition that they are trying to make under the constant eye of the market."
The sales process won't mean much for consumers right away. But a new owner may have a different strategy, potentially trimming the number of outlets as profits slide. Over the past three years, Barnes & Noble's annual profits have slid from $135.8 million to $75
In a prepared statement, Mr. Riggio said he supported the board's decision. He was unavailable for further comment, and a spokeswoman for the company said that it would have no further comment on the situation.
"Going head to head with Amazon and trying to become a different company with the same investor base is tough," said Mike Serbinis, CEO of Kobo Inc., an online digital-book seller in Toronto. "Going private would enable them to transform the business without the pressure of quarterly earnings. It's hard to make the transition that they are trying to make under the constant eye of the market."
The sales process won't mean much for consumers right away. But a new owner may have a different strategy, potentially trimming the number of outlets as profits slide. Over the past three years, Barnes & Noble's annual profits have slid from $135.8 million to $75.9 million to $36.7 million.
The 69-year-old Mr. Riggio currently owns 17.9 million shares of Barnes & Noble stock, or 29.9% of the shares outstanding, making him the largest individual investor.
Mr. Riggio's once-tight grip on the company has come under serious challenge in recent months after investor Ronald Burkle acquired just over 19% of Barnes & Noble's stock. Another investment firm, Aletheia Research & Management has also been amassing the stock and now owns nearly 16%.
The move sets up a potential showdown with Mr. Burkle, who objected to Barnes & Noble's acquisition of a privately held college bookstore unit from Mr. Riggio. Today that business has 637 stores. Mr. Burkle also indicated he may nominate rival board directors this year, potentially unseating Mr. Riggio himself.
Mr. Burkle is also a potential buyer for the chain, as he said he is interested in purchasing additional shares and has talked about Barnes & Noble's uniqueness as a retailer, people familiar with the matter said.
Mr. Burkle's office didn't return calls seeking comment.
Possible buyers for the retailer are private-equity firms, people familiar with the matter said. Barnes & Noble still has a strong brand name that would make an attractive purchase, especially if bidders see potential in its digital strategy, they said.
One literary agent, Laurence Kirshbaum, noted that the "assumption is that they have sufficient working capital to do what they need to do, post any buy-out." However, he added that there are many imponderables, including the final cost of going private.
In late June, Barnes & Noble sounded a warning note, saying that future investments in digital technology, sales and marketing would have an impact on profits in 2011. Over the course of the following month, its stock fell to $11.95 from $16.23. That drop caused the board to decide over the last month that it should explore a possible sale of the company, which is now in the early stages, people familiar with the matter said.
In after-hours trading, Barnes & Noble shares climbed 25% following the company's announcement. The shares have a 52-week high of $28.78. In trading on the New York Stock Exchange on Tuesday, shares had closed at $12.84, down 98 cents, or 7%.
Mr. Riggio launched his first bookstore in New York City in 1965, and six years later acquired Barnes & Noble Inc., which then consisted of a single store. He then used a discount strategy focused on new best-sellers to help spark the growth of the hardcover format.
Intent on additional growth, Mr. Riggio acquired the mall-based B. Dalton Booksellers and then in the early 1990s began to focus on building superstores. Today Barnes & Noble is present in virtually all of its biggest communities and many of its smallest, its stores often serving as community centers where book clubs meet and parents bring their children for story reading
Barnes & Noble last year made significant investments in digital bookselling, including the launch last summer of its own e-bookstore, followed by the unveiling of its Nook e-book reader. But the fast-growing digital landscape is increasingly crowded. Amazon.com Inc. grabbed an early advantage with its Kindle e-reader, introduced in November, 2007. Then earlier this year, Apple Inc. launched its iPad tablet, as well as an electronic book store. Apple has now sold more than 3 million iPads, and has claimed a share of the fast-growing digital books marketplace.
Borders Group Inc., the nation's second largest bookstore chain as measured by revenue, jumped into the e-book business earlier this year, and Google Inc. is expected to soon launch its own e-bookstore, Google Editions.
Mr. Shatzkin, of Idea Logical, said Borders recently acquired a new investor and recapitalized, and that this may have had an impact on the Barnes board as well. "Starting with the iPad, everything that is moving things to e-books faster is bad news for bookstores," he said. "Borders has bought more time. At the same time, Barnes is in a battle with a very powerful guy, and that's draining cash and energy as well."
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