Barnes & Noble Nearing Deal to Be Acquired by Elliott Management

From The Wall Street Journal:

Barnes & Noble Inc. is nearing a deal to be bought by hedge fund Elliott Management Corp., according to people familiar with the matter, as the nation’s largest bookstore chain seeks a new owner after years of decline.

Elliott is the lead bidder in an auction that could come to a head soon, the people said. It is expected to pay $6.50 a share, one of the people said. The stock closed at $5.96, up 30% on Thursday after The Wall Street Journal reported that a deal with Elliott could be imminent. Barnes & Noble had a market value of $436 million as of Thursday’s close.

. . . .

The acquisition wouldn’t be the first foray into bookstores for Elliott, which bought U.K. book chain Waterstones last year. Should Elliott prevail, the $35 billion New York hedge fund is likely to maintain Barnes & Noble and Waterstones as two separate companies with Waterstones Chief Executive James Daunt leading both, some of the people said. Mr. Daunt declined to comment.

. . . .

Barnes & Noble has suffered significant management turnover in recent years while struggling to compete with Amazon.com Inc. and the resurgence of independent bookstores that have proved adept at catering to local tastes with curated offerings.

The company, with 627 stores nationwide, remains a critical partner to publishers, who depend on it to help promote and showcase established writers as well as up-and-coming authors. The issue of discovery—how consumers find writers they were otherwise unfamiliar with—is one of the biggest challenges facing the publishing industry.

Barnes & Noble shares have traded at record lows recently as investors lose confidence in the company’s ability to execute a successful turnaround. Its market capitalization is well below the roughly $3 billion the company was worth before the financial crisis.

. . . .

Under Mr. Daunt, Waterstones rebounded from a period of losses and—unlike many other retailers—has been opening new stores, which it fashions to feel like independent shops.

Link to the rest at The Wall Street Journal (Sorry if you encounter a paywall)

26 thoughts on “Barnes & Noble Nearing Deal to Be Acquired by Elliott Management”

  1. In the “I’ll believe it when I see it” bin.

    Not that I’m expecting trad-pub to be happy, Waterstones is doing well because they aren’t doing it like B&N did. Elliott turning them around should be ‘interesting’ to say the least.

    • Light at the end of the tunnel.

      Second thing Daunt did to fix Waterstones was get out of the payola game and go hyperlocal.
      First thing, though, was to get out of the ebook business.

      • We’ve thought that before – but B&N has always been able to snatch a defeat from the jaws of victory. 😉

        • Yup.
          It’s not a done deal.
          Riggio might still torpedo it.

          But if Daunt ends up in charge he’s likely to take B&N small and hyperlocal. That wouldn’t be bad.

      • A reminder:

        https://www.theguardian.com/books/2017/feb/03/balancing-the-books-how-waterstones-returned-to-profit

        “With a mixture of tough love and an unshakeable belief in the power of the physical book, which seemed quixotic in the era of e-readers and online discounting, Daunt began to turn things around. He closed underperforming stores and fired 200 booksellers, at the same time as declaring that his managers would be given back responsibility for their own stock, because what sold in Hampstead might not go down well in the Highlands. One of his boldest moves was to inform publishers that he would no longer do business through sales reps and they could no longer buy window space – which meant turning his back on £27m a year.

        Instead, a small team of buyers – in close consultation with Daunt himself – would select titles to feature as books of the month across all the stores, while individual managers were free to tailor much of their stock to their customers’ tastes. “

      • @Felix:

        “Second thing Daunt did to fix Waterstones was get out of the payola game and go hyperlocal.
        First thing, though, was to get out of the ebook business.”

        Actually Daunt took over Waterstone’s (it had an apostrophe then) in 2011 and the Waterstone’s ebook store was finally shuttered in 2016.

        In between that Daunt experimented with selling the Kindle e-readers in the stores, which didn’t help much with the Waterstone’s ebook store as there two formats were incompatible.

    • >I’ll believe it when I see it

      So much this. Given B&N’s record, the cynical part of me suspects they’re hyping this in order to get a real offer out of someone else.

      And $6.50 a share, when it just closed 30% up at $5.96? Lol! “I’ll give you $5.50 a share for the next month. After that my offer drops to $5/share.”

      • This is as real as it gets. Riggio owns 19%. Almost all the rest is owned by six other funds. These guys don’t care what Riggio wants.

    • That doesn’t seem like a lot for a major retail chain. I wonder how the various assets were valued.

      • Its about what B&N was paying when they tried to buy Ingram, back in 1998 so it’s roughly what their logistics backbone is worth, discounted for the negative value of the storefronts.

        • I know we all know this, but it’s astounding how little the ebook business matters to this transaction.

          • They may not be in tbe ebook business when he’s done.
            I expect Kobo to come sniffing around soon.

  2. > resurgence of independent bookstores

    This might be the oddest mantra chanted in retail history; at least in the USA it falls apart upon even the most cursory of digging. I’m a bit surprised to see it repeated in the WSJ, but that still doesn’t make it true.

  3. The Waterstones strategy would have worked better if the acquisition had happened before B&N fired most of its people who had the local knowledge. Some of those folks might be able to be lured back but not most of them, and those that do come back will have major gaps in their knowledge.

    • I wonder if the Waterstones’ strategy is dependent on the population density of their locations? Do people walk there? Are they in high foot traffic areas? Does one need a car to get there?

      Lots of B&Ns are in places where driving is the only reasonable access. Is there a cultural and geographic element involved?

      • In british usage, “high street” = main street = downtown.
        Their typical format is under 3000 sqft so it’s a pre-big box model. Foot traffic seems key.

      • It varies a lot between stores of course but, as Felix indicates, they are mostly not places you have to drive to just for the bookshop. My closest one is in the main shopping area of the suburb – very much “major high street” – but is far enough away that I’d have to drive, or take the bus or train (the trams don’t come our way). I suspect that there may be significant differences – much higher overall population density and a lot more public transport in England – that may make it harder to transfer the Waterstones’ model to the USA. However, if they could stick to areas with high footfall …

        As for me, I used to drop into our local Waterstones most weeks, but haven’t been there for years. My fiction purchases are all e-book these days and they never really had the specialised non fiction I buy so there’s now no reason to visit. This business of non fiction purchases is nothing new, most of my hardback purchases were by post from publishers or subject specific postal sellers well before Amazon exisited.

      • B&N is no different.
        And Independent bookstores aren’t known for high salaries, either.

  4. Good, hard data.
    Good find.
    This jumped out:

    “Daunt said his initial approach would be similar to when he took over at Waterstones, to invest in the bookshops and “manage through the people already there”. He said: “There were very good people within Waterstones when I arrived, and I would expect there to be people of similar capabilities within Barnes & Noble, and my job will be to empower them and set them on the right route.” He said he expected Elliott to invest in the business, principally to improve it shops, but would also look to grow the portfolio. “

      • Yeah: growing the portfolio in that context suggests he doesn’t quite get the size of the US. In population, there is a 5x factor, in geography there is a 40x multiplier.
        Waterstones has 293 stores so if he wants comparable numbers just be population, he’ll need to go to 1500 stores.

        If he goes by geography, well, 11 states are by themselves bigger than the UK.

        Elliot better have deep pockets.

        I’m hoping it’s just talk.
        Because even at 3000 sqft it’s going to take a lot of stores to reach any kind of comparability.

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