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 www.ecolibris.net/bookstores_future.asp

Yours,
Raz @ Eco-Libris

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

5 questions to John Malone who is looking to buy Barnes & Noble for $1 billion in cash

Yesterday B&N announced that "the Special Committee of its Board of Directors has received a proposal from Liberty Media to acquire the Company at a price of $17 per share in cash." It means that John Malone, the billionaire who controls Liberty Media is ready to pay about $1 billion in cash to buy B&N.

This is big news and we need some time to digest them and therefore this week we won't have our regular B&N Bankruptcy Index, but instead we'll be asking Malone 5 questions and hopefully we'll be able to receive some answers this week (not directly I assume) and better assess this news for next week's update of the bankruptcy index.

So here are our questions for Mr. Malone:

1. Did you have the chance to talk to Bill Ackman?
He's also a successful businessman and investor who controls Pershing Square Capital Management. Like you he had a good reputation with successful acquisitions in the past that made him money ( Target Stores, J.C. Penney and Fortune Brands) and was looking to achieve similar results with Borders. Four years ago, according to the WSJ, "Ackman first started buying Borders stock, those shares would have been worth $233 million. Today, his stake has lost 99% of its value, down to $2.4 million." Again, he lost about 99% of his investment in Borders.

No wonder Ackman told Deal Journal "it wasn’t a good investment."

2. Do you have a strategy for the brick and mortar bookstores?
No matter how many of them you plan to close and how strongly you want to shift towards the digital business - you're still buying a brick and mortar company (705 stores with 18.4 million square feet, not including B&N college stores) and you need a strategy to start transforming the stores you'll be keeping open back to an asset. Right now, B&N doesn't really seem to have a strategy, so hopefully you bring one with you.

3. Did you watch this video?



It's just 30 seconds, but it will give you an idea you on how complicated and competitive the business environment of B&N is getting.

4. Did you hear about Bookish?
Yes, publishers are becoming your competitors and they're getting better at it. Just read this piece out of Geek.com:

Carolyn Reidy, president and chief executive of Simon & Schuster, told the New York Times that the current discovery of books in the “physical environment” needs to be recreated so that it can happen online, something which Reidy said isn’t currently happening. The NYT said that the publishing companies envision that Bookish will be for books what Pitchfork.com is for music in terms of reviews and information. Bookish, unlike Pitchfork, will also have a sales aspect to it. The site will sell both physical and digital books.

As you can see, there's another front to worry about, so I hope you're ready for that.

5. Did you read the news yesterday that Kindle ebooks outselling print books?
Good news? Yes, you're also in the business of selling e-books and it means it's a growing business. Bad news? You bet.

According to MNN "The Kindle ebooks began outselling hardcover books on Amazon.com in July 2010. Six months later, Kindle ebooks overtook paperback sales as well.Now, Amazon said it is selling more ebooks than hardcover and paperback books — combined. The trend does not appear to be slowing down any time soon." It only shows you that the ebook revolution is moving fast, very fast.

It means that your clock is ticking and you have very little time to adjust B&N to this digital revolution. Remember, you will have 18.4 million square feet of retail to take care of, while your biggest competitor Amazon has none.

To view the weekly changes in the index visit Barnes and Noble Bankruptcy Index on our website.

You can find more resources on the future of bookstores on our website at www.ecolibris.net/bookstores_future.asp

Yours,
Raz @ Eco-Libris

Eco-Libris: Promoting sustainable reading!