Nook Business Won’t Meet Projections This Year, Barnes & Noble Warns

Despite the warning, B&N shares closed 4.3 percent higher Friday at $14.97, likely in part because B&N said a subsidiary of U.K. publishing and education company Pearson was investing about $89.5 million cash in the Nook Media subsidiary at a “post-money valuation” of the subsidiary of about $1.8 billion. In exchange, Pearson will gain preferred membership interests that will represent a 5 percent stake in Nook Media, the companies said. The investment was disclosed in the filing, as well as in a news release. But B&N didn’t include the warning on holiday sales and Nook Media fiscal year results in the news release.

After the close of the transaction, B&N will remain the majority shareholder of Nook Media, with about 78.2 percent, while Microsoft, which also holds preferred membership interests, would own about 16.8 percent of Nook Media, “assuming no exercise of pre-emptive rights by Microsoft,” B&N said. Nook Media will also grant warrants to Pearson to buy up to an additional 5 percent of Nook Media under certain unspecified conditions at the $1.8 billion valuation of Nook Media, B&N said. At closing, Nook Media and Pearson will also enter into a commercial deal for the distribution of Pearson content in connection with the strategic investment, B&N said. On Dec. 21, B&N entered into an amendment to its existing credit agreement with Bank of America, N.A., as administrative agent and collateral agent, and the lenders party “to permit the transactions contemplated by this investment and to effect certain other related modifications,” B&N said.

Pearson’s investment in Nook Media will “accelerate customer access to digital content by pairing its leading expertise in online learning with Nook Media’s expertise in online distribution and customer service,” the companies said in the news release. That will “facilitate improved discovery of available digital content and services, as well as seamless access,” the companies said. Pearson and B&N “have been valued partners for decades, and in recent years both have invested heavily and imaginatively to provide engaging and effective digital reading and learning experiences,” said Pearson North America CEO Will Ethridge. The new deal “extends our partnership and deepens our commitment to provide better, easier experiences for our customers,” he said. The deal with Nook Media “will allow our two companies to work closely together in order to create a more seamless and effective experience for students,” he said. The deal represents “another example of our strategy of making our content and services broadly available to students and faculty through a wide range of distribution partners,” he said.

B&N investors G Asset Management and Rick Schottenfeld, CEO of New York-based Schottenfeld Group Holdings, asked that B&N move to spin off Nook Media into a separate, publicly traded company. B&N said in January that it “decided to pursue strategic exploratory work to separate” the Nook business from the rest of its business. B&N didn’t immediately comment on whether it’s still looking to do that.