Saturday, August 20, 2011

Why John Malone does not want to buy Barnes and Noble?

Bloomberg reported yesterday that "Liberty Media Corp., controlled by billionaire John Malone, invested $204 million in Barnes & Noble Inc. (BKS) after dropping its offer to acquire the largest U.S. bookstore chain"

So why did Malone decide not to buy B&N and purchase only 17 percent of the company's stock (at $17 a share)? Here are few possible answers:

1. He finally understood that B&N has become a risky business operating in a volatile environment.

2. He understands that B&N is still mostly a brick and mortar retailer and as such is very vulnerable to the changes in the book industry, from the rise of e-books to increasing competition from discount retailers such as Wal-Mart (Just a reminder: Comparable store sales at its consumer bookstores fell last quarter 2.9% amid a decline in trade books).

3. He knows that B&N has no winning strategy on how to transform its 700+ stores from a liability into an asset. Apparently he doesn't know it either.

4. He learned the lessons from Borders' bankruptcy and liquidation.

5. All replies are correct.

So why does Malone invest $200 million at B&N? I guess he believes this way he is limiting his risks this way and gives himself a ticket to the world of digital reading, tablets and other future gadgets that will take control of our life in the near future.

On Bloomberg, Bill Kavaler, a New York-based analyst at Oscar Gruss & Son Inc., is quoted saying:

“John Malone likes to buy low-cost calls on interesting potential and ideas and Barnes & Noble is interesting as the only national book chain that’s standing,” Kavaler said. “For $200 million, he’s got a shot at seeing what happens.”

Well, I am not sure if this $200 investment is a cheap bargain. We'll have to see about it. As of today, Friday's stock price of $9.98 results in a $80 million paper loss for Malone.

In any event, there's no doubt this is still a very risky investment - not only because of the stores, but also because on the digital side of the business B&N competes with companies that are more technological oriented and have deeper pockets, such as Amazon and Apple.

We hope Malone won't regret it. We'll keep updating you on it.

You can check our updates on Barnes and Noble Bankruptcy Index on our website.

You can also find more resources on the future of bookstores on our website at

Raz @ Eco-Libris

Eco-Libris: Plant a tree for every book you buy!