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 Amazon.com 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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