Barnes & Noble agrees to spin off struggling Nook
Shares rise as businesses to be split into separately traded companies
Barnes & Noble Inc., facing declining sales at both its bookstore chain and Nook electronic-reader business, plans to split them into separately traded companies in a bid to improve performance.
The spinoff will be completed by the first quarter of next year, New York-based Barnes & Noble said Wednesday. The company also reported fourth-quarter results, showing a drop in the bookstore chain’s comparable sales, as well as continuing losses at the Nook unit. Barnes & Noble predicted that same-store sales would decline in the “low-single digits” this fiscal year.
The breakup follows years of prodding by investors and analysts, who say the two businesses will be more valuable on their own. While both are experiencing sluggish sales, the bookstore chain remains profitable. The Nook business, which developed a line of electronic readers and the content for the devices, has struggled to make money, beset by competition from Amazon.com Inc.’s Kindle and Apple Inc.’s iPad.
“The company has not had an easy time over the last couple years,” said John Tinker, a New York-based analyst at Maxim Group LLC. “They’re now moving ahead in a logical fashion to separate what are very different businesses.”
The retailer’s shares rose as much as 11 per cent to $22.75 after the breakup was announced, marking the biggest intraday gain in more than four months.
A year ago, analysts estimated that the company would be worth 44 per cent more if the businesses
People are still reading physical books, it’s throwing off cash, but all that is masked by the Nook.
were separated, in part because it would make it easier for a buyer to take over one or both divisions. Barnes & Noble’s current market value is about $1.3 billion.
“These businesses will have the best chance of optimizing shareholder value if they are capitalized and operated separately,” Michael Huseby, Barnes & Noble’s chief executive officer, said. “Our retail and Nook Media businesses will continue to have long-term, successful business relationships with each other.”
Barnes & Noble had already scaled back investment in the Nook unit, which has lost money for years. The company announced plans to team up with Samsung Electronics Co. to introduce a cobranded tablet in August that will carry Nook software and content. That lets Barnes & Noble shift away from the costly business of producing hardware.
Barnes & Noble posted a fourthquarter net loss of $36.7 million, or 72 cents a share, compared with a deficit of $114.8 million, or $2.04, a year earlier. The retail segment generated $53.1 million in earnings before interest, taxes, depreciation and amortization last quarter. The Nook unit, meanwhile, lost $56 million on an Ebitda basis, and the red ink will continue this year, the company said.
“The Nook losses have been masking everything else,” Tinker said. “People are still reading physical books and it’s still throwing off cash, but all that is masked by the Nook.”
Barnes & Noble’s total revenue rose 3.5 per cent to $1.32 billion, lifted by growth at its college business. Nook sales accounted for less than 10 per cent of the total, while almost three-quarters came from the retail operations. The college unit, which includes lucrative textbook sales and rentals, made up the rest.
Huseby, who took over as CEO in January, joined the bookseller in 2012 as chief financial officer after working in the cable industry. Billionaire John Malone’s holding company Liberty Media Corp. had offered to buy Barnes & Noble for about $1 billion in 2011, then dropped the bid in favour of buying $204 million in preferred shares. In April, Liberty said it would sell most of that stake.