Barnes & Noble surges after Microsoft invests $300 million

Barnes & Noble Barnes & Noble

April 30 (Bloomberg) -- Barnes & Noble Inc. surged in New York after saying that Microsoft Corp. will invest $300 million in a new subsidiary that combines the bookseller’s Nook digital reader and college businesses.

The shares almost doubled to $27.20 at 8:24 a.m. Barnes & Noble had declined 5.5% this year before today.

The investment will give Microsoft about 18% of the unit, which has yet to be named, New York-based Barnes & Noble said today in a statement. The bookseller will own the remainder of the business, which has a valuation of $1.7 billion.

Barnes & Noble is working to bolster its Nook unit to focus on the growing demand for digital books and compete with Apple Inc. and Inc., whose Kindle device is the best- selling e-reader in the U.S. The venture will develop a Nook application for Windows 8, the newest version of Microsoft’s operating system that’s scheduled for release this year, expanding Barnes & Noble’s digital bookstore to hundreds of millions of customers.

The partnership with Microsoft could give the Nook the kind of content and global expansion to make it a bigger player in the tablet business, said Michael Glickstein, chief investment officer with G Asset Management LLC, a Barnes & Noble investor who has pushed for the company to spin off units. That kind of partnership makes the Nook business more valuable, Glickstein said.

‘Beyond E-Reading’

“With the new Windows rollout, there are so many things you can do with the Nook beyond e-reading,” Glickstein, who is based in New York, said today in a telephone interview. “Now that Bill Gates and Microsoft are in on the tech side, it’s absolutely compelling.”

Barnes & Noble has also settled its patent litigation with Microsoft and the new unit will have a royalty-bearing license, according to the statement.

Barnes & Noble projects the Nook business, which was started in 2009, to generate $1.5 billion in sales in the fiscal year ending April 30, accounting for about 20% of its total revenue.

In the quarter that ended Jan. 28, revenue from the Nook unit rose 38% to $542 million, while total sales rose 2% at the company’s 690 retail stores. Barnes & Noble has about 30% of the U.S. e-book market, compared with Seattle-based Amazon’s 60%. Barnes & Noble posted a net loss of $70.6 million in the 12 months through January.

Liberty Investment

Barnes & Noble put itself up for sale in 2010 following pressure from investor Ron Burkle. The process ended with John Malone’s Liberty Media Corp. investing $204 million in the company in August 2011.

Last month, Barnes & Noble named former cable television executive Michael Huseby chief financial officer as part of the bookstore chain’s shift toward becoming more of a technology company.

Jana Partners LLC, a hedge fund that has pushed for companies to sell off assets, disclosed a 12% stake in Barnes & Noble earlier this month.

Bloomberg News

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