Barnes & Noble war is coming to a head
Burkle and Riggio face off next week at the annual meeting. Board upheaval is possible.
After months of bitter attacks, Los Angeles billionaire Ronald Burkle and Barnes & Noble Inc. Chairman Leonard Riggio are expected to face off Tuesday in the next chapter of a prolonged battle over the world’s largest bookseller.
On one side is Burkle, 57, who made his fortune in supermarket chains and has been rapidly accumulating Barnes & Noble stock since late last year, raising the prospect that he is seeking control of the company.
On the defensive is Riggio, 69, who grew Barnes & Noble from a single store in 1971 to the 1,350-outlet behemoth it is today, one that critics have blamed for the demise of small, independent bookstores.
The fight has grown increasingly nasty in recent days with the two outsized personalities not only slamming the other’s business savvy, financial prowess and motives but also resorting to more personal barbs. They will confront each other Tuesday in New York at Barnes & Noble’s annual meeting, which could result
in a major shakeup of its board of directors.
Burkle has accused Riggio of blatant self-dealing and criticized the company’s lack of direction; Riggio says Burkle is out to take over the company without paying shareholders a premium.
Angered by Barnes & Noble’s refusal to allow him to increase his roughly 19% stake, Burkle escalated the fight in August by launching a proxy contest over three seats on the company’s ninemember board. Burkle has proposed a dissident slate, including himself, in a move to unseat Riggio and defeat two other candidates nominated by the company.
He is also seeking to amend the company’s “poison pill” provision, which is intended to prevent hostile takeovers by barring investors from hoarding more than 20% of its shares without approval by the board.
A Burkle victory might not mean the end for Riggio, who would still be the company’s largest shareholder and could be reappointed as a director if the board expanded to 10 seats.
The final days leading up to next week’s meeting, when the voting ends, have been marked by a flurry of activity from both sides to secure shareholder votes.
Riggio and Burkle have been flying around the country to make their case in person to large shareholders and have hired proxy solicitation firms to call smaller ones and field questions by phone. They’ve also sent “fight letters” blasting the other’s past business decisions and competence.
In a letter to shareholders last week, Burkle’s Los Angeles-based investment firm, Yucaipa Cos., said Barnes & Noble’s assertion that Burkle was trying to take control of the company “shows you just how fictional their hysterical claims are.”
Riggio fired back in a letter Tuesday in which he questioned Burkle’s financial expertise and said many companies Burkle has invested in “have later encountered severe financial distress, including bankruptcy.”
Burkle sought to reach out to Barnes & Noble employees this week, writing a letter he hoped the company would distribute on his behalf.
“Leonard Riggio doesn’t want anyone else in his story,” he wrote in the Thursday letter, in which he talked about his roots as a grocery bagger and his success with supermarket chains including Food 4 Less and Ralphs. “He believes this is his company … except he doesn’t own it … not even half of it … but he acts like he does.”
The letter was followed by a Barnes & Noble statement Friday saying it had “no intention of sending Burkle’s insulting and misleading letter to our people.”
The annual meeting, usually an uneventful one-hour affair, will draw investors, analysts and media to the auditorium of the Asia Society in New York. As chairman of the board, Riggio will preside. Burkle plans to attend and has requested the opportunity to address the audience, one of his representatives said.
Shareholders have been casting their votes by mail, phone and online since August. They can also vote at the meeting.
Proxy contest experts said the Barnes & Noble fight is unusual because only about one-quarter of the shares are up in the air after accounting for stock held by Riggio, company insiders, Burkle and Aletheia Research & Management, a Santa Monica investment firm that has a history of siding with Burkle.
Insiders who have seen daily reports tabulating the voting say it’s a neck-andneck race and that the results may be too close to announce at the meeting. If so, it could take a couple of weeks for an independent election inspector to certify the votes, according to a source familiar with the process who could not speak publicly because the voting reports are confidential.
Although 3 out of 4 proxy advisory companies have backed Riggio’s slate, Burkle appears to have drummed up significant shareholder support.
“Normally we don’t comment on our companies, but in this case I can tell you we are voting with the dissidents,” said Delia Pais, a research assistant with Doheny Asset Management in Los Angeles. She declined to elaborate.
Whatever the outcome, Barnes & Noble faces significant challenges because of the fast-changing nature of the bookselling business. After reaching a record high of $47.40 in early 2006, its stock has been mostly in decline, falling 11% this year and closing at $17 on Friday.
The New York company has begun seeking potential buyers, with Riggio indicating he’s interested. Earlier this year, the company ousted Riggio’s younger brother Steve as chief executive, replacing him with the head of its online division.
If Burkle wins the shareholder vote, it would give him significant input in the company’s management and direction, analysts said. But while he has been vocal in his criticism, he has yet to lay out a strategic plan for Barnes & Noble, which has drawn the ire of the bookseller and puzzled industry watchers.
“We don’t know exactly what Burkle wants,” said David Schick, an analyst at Stifel, Nicolaus & Co. “What we do know is what Burkle has a problem with.”
In Thursday’s letter to Barnes & Noble employees, Burkle reiterated that he was not out to take over the company. “Three new directors can’t control anything — but they can make suggestions, ask questions and explore new ideas,” he said.
Analysts have speculated that Burkle might take an aggressive approach in reshaping the company, which could include closing underperforming stores and investing more in its digital and online divisions. He has also been sharply critical of the company’s decision to purchase a college bookstore business from Riggio for $514 million.
Although Barnes & Noble is a massive brick-andmortar bookstore chain, analysts said it is a giant in a market that is shrinking as more consumers turn to other avenues for books, including the Internet and discounters. It’s also being squeezed by digital e-readers such as Amazon.com’s Kindle and Apple’s iPad.
“I don’t know that the company is in dire straits and needs an outside injection, but often in volatile markets or industries, change can be a good thing,” said Peter Wahlstrom, an equity analyst with Morningstar Inc.
“But you’d much rather have all parties be on the same page if you’re suggesting or making a change. And what you have here in the near term is probably more of a distraction than anything.”
AT ODDS: The sparring between Yucaipa Cos.’ Ronald Burkle, left, and Barnes & Noble’s Leonard Riggio has grown increasingly nasty.