by Alexander Moschina, Investment U Research
Friday, August 20, 2010
Barnes & Noble, Inc. (NYSE: BKS) – the largest bookstore chain in the United States – is in trouble. So much trouble that it’s decided to put itself up for sale.
The bookseller, whose stock recently dropped to a 10-year low, is hoping for a takeover bid as it tries to gain a foothold in the growing e-reader market.
But so far, it hasn’t received any bids. So what does the future hold for this troubled giant?
Riggio Riding to the Rescue?
Founder and Chairman Leonard Riggio announced that he’s considering purchasing the company himself, with a view to taking it private. That would allow him to unreservedly invest resources in B&N’s electronic reading device, the “Nook” – an area where the company is in dire need to help.
|A $900 Million Personal Battle?
Riggio’s attempt to privatize Barnes & Noble may be a last-ditch effort to keep billionaire investor, Ron Burkle, from nabbing the company’s controlling stake.
And it’s not the first time they’ve butted heads…
Last November, Burkle pushed for B&N to purchase Borders Group, Inc. (NYSE: BGP). Riggio immediately rallied the shareholders in opposition, realizing the two companies would have an overwhelming amount of redundant products.
So Riggio offered to sell cheaper shares to dilute Burkle’s if he manages to gain a controlling stake.
In July, Burkle disputed this maneuver in court, stating to the judge: “The company has gone out of its way to be as difficult as possible.”
But converting B&N into a privately owned company could silence Burkle once and for all.
With the popularity of e-books growing rapidly, it’s set to hammer the last nails into the printed word’s coffin. E-books already outsell hardcovers by almost 50%, with the number only set to grow over the coming years.
Nook vs. Kindle vs. iPad: An Almighty e-Scrap
A battle is brewing in the $500 million e-reading industry – the Nook vs. the Kindle vs. the iPad. And without doubt, the Kindle rules the roost.
Ian Freed, Amazon’s VP in charge of the Kindle, said its e-reader currently makes up 70-80% of the market share.
That leaves B&N’s Nook to fight with Apple’s iPad over the scraps. And the company is losing that battle, too.
The Nook has sold around 600,000 units since it hit the market in November 2009. But in less than half the time, Apple has already sold over three million iPads.
In a desperate attempt to drum up some more business, B&N slashed Nook prices in June – from $259 to $199.
The company has no choice. According to Riggio: “Digital publishing and digital book-selling will soon become the most explosive development in the history of our industry and will sweep aside those who aren’t participating.”
He added that the company will close six to ten stores annually over the next three years, as a result of shrinking demand for its print products.
The bottom line is that if the Nook doesn’t catch up to the Kindle – or iPad for that matter – B&N is going to lose its stake in the digital boom. And that problem will be magnify as print revenue continues to decline.
And while some new Nook features and tech buzz may cause future short-term jumps in B&N’s share price, don’t be fooled: in the end, unless it can find a way to compete over the long run, B&N will likely succumb to its stronger competitors.