Tuesday, August 24, 2010

The Battle for Barnes & Noble

Barnes & Noble (BKS) announced a first quarter loss today, falling short of the company's forecast and underscoring not only booksellers' ongoing struggles in a soft market, but Barnes & Noble's particular battle between Ron Burkle and Leonard Riggio.

First, some background. Leonard Riggio is the chairman and largest stockholder of the company, which has been trying to sell itself (on its own terms, more or less) for awhile now, given that their sales are declining and (in my opinion) they want to attract fresh capital for their reinvention as a cutting-edge digital media company. Ron Burkle is a mega-rich investor who has accumulated almost 20% of BKS's stock and, despite his comments to the contrary, is widely believed to be attempting a takeover of the company.

Barnes & Noble, however, has what's called a "poison pill" defense (named for a spy's last resort should he or she be captured by the enemy) that makes it prohibitively expensive for Burkle to reach 20% (Riggo himself owns almost 30%). (If you're interested, you can read the details here.) Long story short: Burkle wants Barnes & Noble, which comes with the ability to unseat Riggio and to add his own people to the company's board of directors. Riggio, of course, is fighting back.

Talks have repeatedly broken down this summer, culminating with a Delaware judge's ruling that BKS was not being unreasonable in its defense against Burkle. This resulted in a proxy fight that, if successful, will accomplish the same thing: eliminate Riggio and add Burkle to the board.

This doesn't mean a whole lot for Barnes & Noble in the short term (at least, not in an operational sense); business will continue as usual despite the mounting legal fees. While some have speculated that the battle against Burkle is partially responsible for BKS's 1Q decline, I'm more inclined to think it has to do with slumping hardcover sales and reduced consumer spending in general. In short: Barnes & Noble is, à mon avis, far from doomed, but they certainly have their work cut out for them.

What do you think, mes auteurs?


  1. Hi Eric. It's a tough industry all the way around right now. Readers,retail, buyers, distributors, writers ... everyone is struggling with finances and trying to adapt to the major shift in how the 'business of books' is being conducted.

    As a layperson, B&N is THE representation of big book business. If they sink/struggle, then it seems like the brick and mortar model is probably dead. It would be a similar impact if Walmart suddenly left the retail business. If they can't survive, no one can.

    I'm not saying B&N is going under, btw, as I agree with you: it seems too big of a name to not adapt. However, I think we'd be remiss to not see this as a major tremor in an already shaky industry/market.

  2. I've been following this one closely. The press has done a good job portraying Riggio as the good guy and Burkle as the bad guy. What they haven't done is explain why. Does Burkle want to dismantle the company? Does he want to bleed it dry before it folds? Other than him being rich and Riggio being a long-term employee, I've heard nothing one way or the other why one of these men leading the company is any better or worse than the other.

    So what's the deal?

  3. Sounds like it comes down to one basic element. Greed.

  4. It sounds like the legal battle is only part of the problem. More on that here:

    With a 21% increase in total revenue during Q1, their problem is definitely inflation of costs. http://www.publishersweekly.com/pw/by-topic/industry-news/financial-reporting/article/44250-charges-investments-lead-to-loss-at-barnes--noble.html

    "B&N expected to incur a loss due to its investment in its digital initiatives" sounds to me like they dumped a lot of cash into the Nook and ebook promotion. Had they foreseen this road sooner, they might have been able to spread out some of their investment over the long term. But who thinks long term these days...

  5. Here is what I think. I worked at Crown books when I was a teenager and the store was a small store, in a strip mall. Then B&N moved in with their mega stores and their cafes. Crown went all "ME TOO" and built Super Crowns. Crown eventually went under, losing out to B&N, and now B&N is finding it difficult to maintain sales with giant mega stores.

    In my area, one or two B&Ns have closed, which I lamented because there just aren't any other bookstores around. B&N has beat them all. But people still want to read. I think some smart and savvy entrepreneur should open a small shop like the old days, and find some way to sell ebooks through it too -- as a side (not as the main goods). Offer coffee, too, sure.

    There's no reason we need mega bookstores, no matter how awesome they are, and no reason why we shouldn't just reduce down in size when the economy gets out of hand. Adapt, not burn out.

  6. I hope they work it out. I love B&N and especially my NOOK. They do need more online options though. The brick and morter stores are dinosaurs.