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Barnes & Noble Inc’s Chairman Contemplating Retail (bookstores) Division Buyout (BKS)

Barnes & Noble Inc.’s (NYSE: BKS) Chairman and biggest stakeholder, Leonard Riggio, has shown interest on buying out Company’s consumer book store chain division, possibly splitting the company into two.

Riggio, who owns nearly 30% stake in the Company, said in a regulatory filing on Monday that he intends to offer a buyout proposal for B&N retail division but not for B&N College and Nook business.  In a regulatory filing, Riggio said that he will negotiate price with the Company’s board and finance the deal with both cash and debt.

The announcement comes after the Company disclosed last year that it was contemplating separating Nook business from rest of the businesses, saying that a special board committee was being advised by the Evercore Partners over the possible split; however, it did not provide any detailed plans regarding over this matter.

Barnes & Noble’s print-book business has come under immense pressure in the backdrop of readers’ growing preference for smartphones, tablets and dedicated e-readers, which allows downloading e-books while completion from online retail giant, Inc also eroded its top-line.

Although Barnes & Noble’s physical stores (retail division) remain a profitable business, generating $317 million in EBITDA( earnings before interest, tax, depreciation and amortization) during  fiscal 2012, investors are highly skeptical about the future of physical bookstores; and for them, a sale at this juncture will be better option to one in the future.

Earlier in January, B&N’s retail Group’s Chief Executive, Mitchell Klipper said that he the Company was likely to shutter about one third of its retail stores in the course of next 10 years.

Additionally, Barnes & Noble’s digital reading business has not performed up to the expectation. Margins have got squeezed as the competition in the e-reading business has intensified with many players such as Apple, Amazon’s (Kindle) offering e-downloads. Barnes & Noble’s Nook business posted $262 million EBITDA loss in fiscal 2012. Just few days ago, the Company said that it losses are likely to widen in fiscal 2013.

In this backdrop, taking private the retail business could help solving some of the issues for the Company as it would offer more freedom to decide where the company can allocate its scarce capital.


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