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Barnes & Noble Investor Wants a Nook Spinoff for Christmas

10 December 2012

From Minyanville:

Barnes & Noble should spin off its Nook Media unit of e-readers and e-books, fulfilling a strategy the company said it was exploring at the start of 2012, according to a letter sent by an investor to company management on Friday.

Rick Schottenfeld, head of investment firm the Schottenfeld Group, said in a letter sent to Barnes & Noble that the company should follow through on a proposal to spin off its fast growing Nook business into a separate publicly traded company.

. . . .

In the Friday letter sent to Barnes& Noble chairman Leonard Riggio, Schottenfeld argued that significant stockholder value is trapped within the company’s conglomerate structure, which includes a declining but cash flow positive physical bookstore business and, Nook, its fast-growing but money losing digital books and tablet unit.

Schottenfeld argued Barnes & Noble’s mature and cash generating retail unit isn’t a good fit with its high growth Nook business in public markets. A spinoff, he said, would give investors reason to pay higher multiples for Barnes& Noble’s combined assets. Meanwhile, the investor also argued investing Barnes& Noble’s legacy bookstore cash flow into Nook has been a poor use of the company’s liquidity.

“Unfortunately, what we are left with today is a dysfunctional business with two divisions that are seemingly at odds with each other,” wrote Schottenfeld. 

Link to the rest at Minyanville

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20 Comments to “Barnes & Noble Investor Wants a Nook Spinoff for Christmas”

  1. P.G.

    Didn’t you just say yesterday that the Nook was cheese and crackered?


  2. Its really a shame. The nook line is a good one and could provide healthy competition. Sadly, this is why I’m looking to upgrade my 1st gen nook with the new kindle paperwhite or kobo glo. Just too bad.

    • I still have my 1st-gen Nook. It’s a fine tablet. I’ve got it rooted, running Gingerbread, so I have access to all ebook stores. I use it as a booth demo. Sometimes I have a book loaded in it, sometimes I’m playing the podcast versions of my serial work.

      I really like the Nook and would hate to see it go. That said… I did root mine. I don’t think there’s much point in getting “pure” readers unless you’re getting an e-ink model, for the battery life. A full-fledged tablet gives you more functionality and some of the cheap models cost less than $100 on Amazon these days.

      • A lot of people krep talking about how tablets are a better choice because you can read in them as well. This is inly true if you read for shirt oeriods at a time. Eink mimicks paper where the lcd screens do not. Maybe some can read for prolonged periods on them, but the start to give me eyestrain after a while. Thats why I and many others prefer the eink readers to read books.

        • A tablet is my primary form of reading, and I read a lot. And my wife uses her ASUS tablet and she reads much, much more than I do.

          There is no “this is only true if.” Whether one goes tablet or e-ink is a matter of preference, and preference only — suggesting otherwise ranks right up there with the people who said “people will never read digitally, ebooks will never replace books.” It is a personal preference that is being translated into an absolute statement of unalterable fact. If e-ink is your preference, that’s great, but don’t assume the rest of us have the same standards.

          Hell, I read Scalzi’s “Redshirts” on my freaking phone. Sure, it’s a Galaxy Note, but that screen is significantly smaller than any e-reader and it didn’t put me out one bit.

          • What he said. I read almost exclusively on my iPad, for hours at a time. So long as there’s no direct lighting to cause glare it’s as good or better than my Kindle.

          • Yes, which is why I said maybe some people can read on them for prolonged periods of time but they strain my eyes and many other people say the same. Didn’t think I was assuming anything by stating such. When you spoke your opinion about ereaders not being worth it unless it’s for the battery life, I listed a different perspective.

  3. PubIt has some very nice qualities and some in need of further development. I’d love to see PubIt and Nook to independent. I think the product would improve and would be good for indie authors. Would it be good for stockholders? No clue.

    • The advantage of PubIt is that it publishes directly to bn.com, which is a significant competitive advantage in attracting indie publishers.

      The problem with PubIt is that it publishes directly to bn.com, which sucks giant dirt-covered rocks, likely bearing significant quantities of arsenic salts.

      If you spun it off from B&N, it would turn into a second-rate Smashwords, and we already have several of those. Unless it retained its competitive advantage with respect to publishing on bn.com, it would have absolutely no distinguishing characteristics, and if it did, why spin it off? I can see spinning off the hardware division and keeping PubIt. I don’t see in the OP whether a Nook spinoff would include PubIt, and I hesitate to guess either way.

      • …I am more and more glad that I decided to not bother with going to PubIt, rather than staying with Smashwords for the distribution. (Besides, I get better rates on 99c short stories, going through Smashwords, than if I went direct!)

        (Which reminds me that I should probably poke Smashwords and ask when B&N is gonna cough up that $$ it owes me…)

  4. Investment analyst talk never seems to make any sense. Kind of like the praise for Chapters/Indigo selling off their Kobo division to a Japanese firm. Kobo yeilded their highest profit margins – ample reason to cut them loose, I suppose.

    Rember how everyone was falling over each other to extoll the virtues of the various financial instruments that helped contribute to the economic meltdown?

    I’m just not sure anybody really knows what works in this economy.

    • I suspect the logic in this case is “Nook is great but B&N isn’t devoting the time we want into it as a product, if it were spun off into its own thing the company would have to focus on it, since that would be the point of spinning it off into its own thing.”

      But I don’t know if that would actually work, since “its own thing” wouldn’t have the name recognition of B&N or the advantages or the tie to the B&N site.

      • Could be the reason. I bet someone in the room was thinking Or we could devote the neccessary energy towards making Nook work, since it might represent the future of our company…
        Then they shrug and decide the boss must know best, and if he doesn’t he certainly doesn’t want you drawing everyone’s attention to it.
        Perhaps the spinoff will generate enough short term bonus and stock options to make it worth the change (for two or three really senior folks who can sell off and jump ship).

  5. No surprise here.
    Remember, when Microsoft signed the deal to fund Nook Media, the dollar amount of their share of Nook Media values the unit *higher* than B&N + Nook Media.
    And since B&N is *not* a negative-value operation the shareholder is literally correct: a spinoff will increase shareholder value… at the time of the spinoff.

    It would not only allow Nook Media to do what is best for Nook Media’s growth (bigger, better customer support, for starters), but also force a proper cost accounting of B&N resources going to support Nook (like the floor space and staff training). For example: Kobo is reportedly playing its indie bookstore partners a commission of 6-11% of ebook revenue for readers sold by the specific partner. An independent Nook might feed comparable commissions to B&N for the (presumed) advantages of the ties to the B&N operation or, alternately, they could choose to rely on online sales as Amazon does, if the advantages prove more theoretical than real.

    The key issue from the investor standpoint is that technology companies command higher share prices than do B&M retailers even when their financials are weaker. As a result, a split could result in both stocks going up in value; Nook because of being valued as a growth tech company and B&N in recognition of the explicit Nook revenue.

    Riggio likely has a fight on his hands.

  6. So my official theory on this is B&N’s hands are tied somewhat regarding the Nook because a) Microsoft sued them for violating patents (Nook is android-based) and b) they settled during the preliminary parts of the trial. I was hoping they’d fight tooth and nail – at first it looked like they were going to – but Microsoft definitely had the financial advantage there.

    So I guess the Nook is being neglected, despite its success, because of whatever agreement they made with Microsoft. I honestly can’t blame them for that. Microsoft has enormously deep pockets, even now. It’d be hard to afford that lawsuit.

    • At this point Microsoft would likely *urge* Riggio to spin Nook off. No hidden secrets and no puppeteering going on.

      • Doubt it. Microsoft is completely opposed to anything android.

        • Android? feh.
          Android has *nothing* to do with Microsoft’s interest in Nook.
          Their whole deal with MS is about the reader app and the ebookstore. MS needed to match (or better) iTunes for their tablet push. That means games (XBOX and XNA will provide) music and video (they already have both discrete sales and rentals for download *and* streaming, plus a music subscription service), and it means books. Which meant either belatedly getting into ebook sales (waay late for that) or buying into an existing operation. And with B&N chronically in need of cash…
          Microsoft is concerned about iPad getting a piece of the corporate computing world, not about android in phones and consumer devices. After all, they make more direct money off android than Google does. They even support it with their SmartGlass app and Skype and other services.

          And one likely reason the shareholders would want to see a Nook spinoff is that an independent Nook Media would, in case of financial disaster, be a target for Microsoft acquisition. They *need* ebooks to match up with Apple.

          Microsoft’s Nook play is all about ebooks.
          Amazon isn’t for sale, Rakuten won’t let Kobo go any time soon, the Sony store and the other generic Adept stores are too small to be any good and it’s too late in the game to build one up to spec. Plus there’s PubIt.
          So they bought a chunk of Nook at a price that values the rest much higher than *all* of B&N, Nook included.

          That brings consequences.

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