Tuesday, May 01, 2012

BN Puts Nook and College Business Into New Subsidiary, With Microsoft Investing $300 Million


The future of both Barnes & Noble and the digital reading business took new shape Monday morning as the bookseller announced the creation of a new subsidiary, into which they have transferred all of the Nook and BN College units (comprising "their digital device, digital content and college bookstore businesses.") Microsoft is investing $300 million in that subsidiary--called simply NewCo for now (a standard corporate placeholder before the real name is finalized)--in exchange for preferred shares representing a 17.6 percent stake. That gives the newly-formed unit an approximate valuation of $1.7 billion (with BN's share valued at $1.4 billion) -- far more than parent company Barnes & Noble's market capitalization of roughly $790 million as of the close of the market on Friday.

BN shares doubled in pre-market trading, but within 30 minutes after the opening of regular trading they had settled a bit, rising by roughly 65 percent to approximately $22.50 a share. Those shares are facing a massive "short squeeze"; as we detailed last week, only approximately 10 percent, or 6 million shares, of Barnes & Noble stock was in the hands of investors with less than a 5 percent stake in the company--but as of April 13, there was huge short interest of roughly 19 million shares, and those bettors need to cover their losses. It was just last week that Jana Partners intensified questions about Barnes & Noble's investor structure when they disclosed a nearly 12 percent stake in the company (along with more short-term options), considered by Wall Street players a prelude to further rearrangement of the company's financial structure. Jana's investment has roughly doubled in just a few weeks.

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