Analysts Intrigued by Liberty’s Proposed Barnes & Noble Buy
Possible strategic benefits coming out of the proposed bid by Liberty Media for bookseller Barnes & Noble include “a digital platform that could extend beyond books into TV and movie sales,” said a report Friday by Jason Bazinet, analyst at Citi Global Markets. Bazinet also said a possible outcome of the proposed acquisition includes “a potential acquisition of Borders,” which filed for Chapter 11 in February. A combined Barnes & Noble and Borders would “likely result in significant synergies,” Bazinet said.
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Collins Stewart maintained a “buy” rating on Liberty Media last week following the company’s $1 billion bid for Barnes & Noble. “It’s an interesting strategic step for Liberty Media as they look to add to their current asset base,” analyst Thomas Eagen told us. He said Liberty’s strategy is to “invest in depressed assets and spin them out over time,” which the company has done with DirecTV and Sirius XM, “and it could be they're looking to do something here too.”
Barnes & Noble announced last Friday Liberty Media’s bid to buy the company at a per-share price of $17 in cash, which includes a continuing role for founding chairman Leonard Riggio. In response to our query about Riggio’s reported interest in putting together a bid to buy the company last summer (CED Aug 5 p1), spokeswoman Maryellen Keating would only refer us to the official release announcing the Liberty bid as being “contingent on the participation of founding chairman Leonard Riggio, both in terms of his continuing equity ownership and his continuing role in management.” She wouldn’t comment beyond that and was unable to provide a timetable for a decision on the Liberty bid, which will be made by a specially commissioned board.
Analysts viewed the bid by Liberty as low. The board “will not accept at 17,” David Strasser, analyst at Janney Capital Markets, told us in an e-mail. “It has to be higher.” The deal would give Liberty Media exposure to e-books, Strasser said. The media company “could probably sell Liberty products in stores,” too, he said, “but ultimately it’s about e-books.” Liberty’s interactive properties include QVC, Bodybuilding.com, Evite, Gifts.com, and interests in HSN and Expedia. Liberty Media also owns Starz and the Atlanta Braves, and has minority stakes in Time Warner, Viacom and Ticketmaster parent Live Nation.
The Barnes & Noble board put the company on the block last summer when it reported less than $61 million cash and $510 million in debt June 30. In its most recent earnings call for Q3 in February, Barnes & Noble CEO William Lynch said the company had a 25 percent share of the U.S. e-book market, more than its share of physical books (CED Feb 23 p8). During the call, in the wake of Borders’ Chapter 11 filing, Lynch announced the company was suspending its 25 cent-per-share dividend to give it the flexibility “to make quick investment decisions as opportunities arise.” He said at the time the company didn’t plan to close any additional stores. He also said a minority of Borders’ 200 locations held interest for Barnes & Noble. Barnes & Noble operates 705 stores in 50 states.
Net income at Barnes & Noble fell to $60.5 million for the quarter ended Jan. 29, from $80.4 million in Q3 2010, it said. Sales for Q3 were $2.3 billion, up seven percent from the year-earlier period. Barnes & Noble closed up $4.36 on Friday to $18.47.