B&N, Microsoft team up on Nook, college businesses

Microsoft takes $300M stake in Barnes & Noble college, digital businesses; to set up new co.

                              

NEW YORK (AP) -- Barnes & Noble Inc. and Microsoft Corp. are teaming up to create a new Barnes & Noble subsidiary that will house the digital and college businesses of the bookseller and include a Nook application for Windows 8.

The companies said Monday that they are exploring separating those businesses entirely. That could mean a stock offering, sale, or other deal could happen.

The deal gives Barnes & Noble ammunition to fend off shareholders who have agitated for a sale of the Nook business or the whole company. For Microsoft, it represents a move into the e-book business, which has been targeted by Amazon.com, Apple Inc. and Google Inc.

"Our complementary assets will accelerate e-reading innovation across a broad range of Windows devices, enabling people to not just read stories, but to be part of them. We're on the cusp of a revolution in reading," Andy Lees, president at Microsoft, said in a statement.

Shares of Barnes & Noble jumped $10.82, or 79.1 percent, to $24.50 in premarket trading. Microsoft's stock shed 12 cents to $31.86.

The partnership with Microsoft will see the Redmond, Wash. company make a $300 million investment in the subsidiary for an approximately 17.6 percent stake. Barnes & Noble will own about 82.4 percent of the subsidiary, which has yet to be officially named.

The companies said that the subsidiary will have an ongoing relationship with Barnes & Noble's retail stores, but what that relationship will be is unclear.

Barnes & Noble, based in New York, currently runs 691 bookstores in 50 states. A representative for the company could not be immediately reached for comment.

The possibility of a separation of Barnes & Noble's digital and college businesses has been brewing recently. In March private investment firm G Asset Management, a Barnes & Noble shareholder, offered $460 million for a 51 percent stake in the company's college bookstore unit, Banes & Noble College Booksellers LLC.

Under that plan, the college bookstore unit was proposed to begin as a private business but become public within a "reasonable" amount of time. G Asset's offer was contingent upon Barnes & Noble keeping current management in place and separating its Nook e-business from the rest of the company. At the time the offer was made, Barnes & Noble declined to comment.

In 2009, Barnes & Noble Inc. bought the college bookstore unit from Chairman Leonard Riggio in a deal worth $596 million. The deal ended up costing Barnes & Noble $460 million after accounting for the unit's cash on hand at the closing date.

Barnes & Noble is looking to maximize the potential of its Nook e-book readers. The New York company has tried to adjust to a noticeable shift in book reading habits, with e-book readers becoming increasingly popular with consumers over traditional hardcover or paperback books. But Barnes & Noble is dealing with tough competition on that end from the likes of Amazon.com Inc.'s Kindle and others.

"The formation of Newco and our relationship with Microsoft are important parts of our strategy to capitalize on the rapid growth of the Nook business, and to solidify our position as a leader in the exploding market for digital content in the consumer and education segments," Barnes & Noble CEO William Lynch said.

The Nook app will make Barnes & Noble's catalog of e-books, magazines and newspapers available to Windows customers in the U.S. and abroad. The subsidiary also will include Barnes & Noble's Nook Study software.