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What Does John Malone Know That the Rest of Us Don’t? His Liberty Media Makes Surprise $1 Billion Offer to Save Barnes & Noble

May 20, 2011  •  Post A Comment

John Malone’s Liberty Media has offered Barnes & Noble $17 a share to buy out the troubled bookseller, according to a number of media reports.

The offer, made on Thursday, May 19, 2011,  values Barnes & Noble at about $1 billion, and was a 20% premium over the closing price of Barnes & Noble shares on Wednesday.

The Wall Street Journal’s Deal  Journal  blog put this headline on its story about the proposed deal: "Insane! John Malone Offers to Buy Barnes & Noble." In the blog Shira Ovide writes,  "No, we don’t understand this at all. But Malone is a smart and wily guy who loves doing tax free deals. Barnes & Noble doesn’t have many of the juicy net operating loss carryforwards — a.k.a., tax benefits — that Malone covets so much. But mostly, Malone loves to make money on underappreciated investments . His Liberty Media in 2009 swooped in to buy up bonds in Sirius XM, the satellite radio company that at the time appeared to be on death’s door. That investment has turned out to be an absolute home run. Just ask a Liberty Media executive about the investment, and he or she will grin like the Cheshire Cat."

Liberty released this statement on Thursday about the proposed deal: "Liberty Media Corporation (Nasdaq: LCAPA, LCAPB, LINTA, LINTB, LSTZA, LSTZB) announced today that it has made a proposal to acquire Barnes & Noble Inc. for $17 per share in cash. Barnes & Noble is the established leader in bookselling and is at the forefront of the transition to digital, with a management team that has demonstrated expertise in operations and positioned the company for growth in a dynamic marketplace.

"Liberty’s proposal, which contemplates that the acquisition will be structured as a merger, is subject to various conditions, including satisfactory financing and the participation of founding chairman Leonard Riggio, both in terms of his continuing equity ownership and his continuing role in management. Liberty’s equity ownership, which would be attributed to the Liberty Capital group, is expected to be approximately 70% of Barnes & Noble. Liberty expects that its cash contribution toward the purchase price, depending on the amount of financing that can be obtained, will be in the range of $500 million.

"As previously announced, Liberty plans to split-off the businesses, assets and liabilities currently attributed to the Liberty Capital and Liberty Starz tracking stock groups."

The deal comes on the same day it was revealed that "Since April 1, Amazon sold 105 books for its Kindle e-reader for every 100 hardcover and paperback books, including books without Kindle versions and excluding free e-books," according to a story in The New York Times.

An infusion of money from Liberty could help Barnes & Noble close more brick and mortar stores faster and could help it to faster become a more serious competitor in the digital space.

In Bloomberg’s story about the proposed deal, Brian Sozzi, a retail analyst for Wall Street Strategies in New York is quoted as saying, "It’s making a bet on an industry that is rapidly changing with every download being a vote against Barnes & Noble’s business model for brick-and-mortar stores. Every time somebody goes out and buys an iPad or a Kindle, Barnes & Noble’s assets are depreciating.”

The Deal Journal blog added in its story, which was published at about 7:30 pm (ET) Thursday night, "Predictably, Barnes & Noble shares are soaring about 19% in after-hours trading, after ending the day at $14.11 a pop. The offer from Malone’s Liberty Media is $17 a share. (Recall that a year ago, Barnes & Noble shares were trading at $20 a pop.) UPDATE: Now the shares are trading ABOVE the Malone offer. Also insane."

According to a Business Journal story, Barnes & Noble "operates 705 retail stores and 636 college book stores and offers more than 2 million ebook titles for its electronic reader, the Nook."

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