"There are companies that do this because they have to and there are companies that do this because they have impatient shareholders and I'm not sure what's driving this kind of statement," Michael Norris, a senior analyst at Simba Information, told The Associated Press. "It just seems daft."
The company's board said that it believed Barnes & Noble stock was "significantly undervalued" and that it had established a special committee to review its options.
"Barnes & Noble has an iconic brand and unique competitive advantages we believe will position the company to succeed over time in a rapidly changing market," the board said in a statement. "The board is confident in Barnes & Noble's strategy and fully supportive of the senior management team, which is delivering explosive growth in our fast developing-digital business."
However, few analysts believe suitors will line up to acquire the nation's largest book retailer.
"It's difficult to envision a buyer of this company given the structural issues it continues to face," said Credit Suisse Group AG (NYSE ADR: CS) analyst Gary Balter. "We view the announcement as possibly an attempt to quell some of the corporate governance concerns raised by Ron Burkle and perhaps a way to explore if any outside interest actually exists."
Los Angeles billionaire and activist investor Ron Burkle is a major stakeholder who has been making moves to increase his roughly 19% stake in Barnes & Noble. His investment firm Yucaipa Cos. sued Barnes & Noble in May in an attempt to dismantle the company's poison-pill policy, which tries to prevent hostile takeovers by banning investors from hoarding more than 20% of its shares without approval from the board.
Burkle says the "poison pill" plan creates an unfair playing field that favors Barnes & Noble Chairman Leonard Riggio, who has a 30% stake in the company. Burkle testified last month in a Delaware trial that he considered making a $25 per share bid for the company, which at the time was trading at $16 a share. He said he abandoned that plan, as it was rendered "pointless" by Riggio's blocking position.
At the same trial, Riggio testified that he and his advisors had discussed how to thwart Burkle's campaign. Many analysts believe Riggio will seek private equity backing before launching a bid of his own.
"Regardless of whether I participate in an investment group that buys the company, I, as well as the entire senior management team, am willing and eager to remain with the company and see it through the challenging years ahead," said Riggio.
Going private in that manner could help the company refocus its business on the fast-growing digital book segment where it's fallen behind competitors – chiefly Amazon.com Inc. (Nasdaq: AMZN).
Brick & Mortars on the Brink of Collapse
Indeed, Barnes & Noble has struggled so mightily against Amazon that some analysts fear it might be going the way of Blockbuster Inc. (PINK: BLOKA).
Blockbuster, formerly the largest video rental chain in the country, was delisted in July from the New York Stock Exchange after shareholders failed to approve a recapitalization plan that was necessary to comply with listing requirements. The company also pushed back a $42.4 million debt payment until Aug. 13.
Blockbuster's ubiquitous blue and yellow standards were driven down by Netflix Inc. (Nasdaq: NFLX), whose online model offered consumers a cheaper and more efficient way of renting videos.
Now Barnes & Noble could end up waving the white flag in its war against Amazon, which offers both new and used books online and has launched a popular e-reader – the Kindle. By changing the retail landscape Amazon has left Barnes & Noble struggling to adapt to changing consumer tastes.
The chain announced last year that it had acquired online e-book retailer Fictionwise and opened up the world's largest e-book store. Barnes & Noble also unveiled a reader of its own, the Nook, but it continues to lag behind Amazon in sales and new competition from Sony Corp. (NYSE ADR: SNE) and Apple Inc. (Nasdaq: AAPL) is bearing down.
Nearly 2 million Kindles had been sold as of mid-June, compared to 600,000 Nooks, according to the Codex Group, a consultant to the publishing industry. Barnes & Noble has struggled to bridge that gap – despite the heated price war that took place earlier in the summer.
Barnes & Noble in June lowered the price of the Nook to $199 from $259. But Amazon countered by quickly cutting the price of its Kindle to $189 from $259. Then in July, Amazon announced plans to introduce two new versions of its Kindle e-reader, one for $139. Barnes & Noble also sells a version of the Nook, without free 3G, for $149.
Amazon said last month that Kindle sales have tripled since the price cut and e-book sales now outnumber hardcover book sales. It also claims responsibility for eight out of every 10 e-books sold.
"We're pretty sure we're 70-80% percent of the [e-book] market," Amazon's vice president in charge of the Kindle, said in an Aug. 2 interview with Cnet.
The company reported a 46% jump in second-quarter earnings, punctuated by a 71% jump in operating income.
Barnes & Noble posted $5.8 billion in sales for the 2010 fiscal year, with in-store sales falling 4.8% from the year prior. The company said during its June earnings release that it expected in-store sales to range from being flat to being up 3% in fiscal 2011.
News and Related Story Links:
- Money Morning:
Hot Stocks: Barnes & Noble Attempts to Stave Off Extinction by Butting Into the E-Book Market
- Money Morning:
Hot Stocks: Netflix Finds Success in Innovation, While Other Video Rental Companies Fight For Survival
Amazon: We have 70-80 percent of e-book market
- Associated Press:
Barnes & Noble may put itself up for sale