Liberty Media sells stake in Barnes & Noble

It’s not looking good for brick and mortar bookstores these days. On Thursday, Liberty Media said it would sell most of its holdings in Barnes & Noble, signaling that physical books are becoming a relic of the past.

The New York Times had this story by Michael J. de la Merced:

Nearly three years ago, Liberty Media wanted to buy all of Barnes & Noble, before settling for a big stake. Now it appears that the media conglomerate has had enough.

Liberty announced on Thursday that it would divest the vast majority of its stake in the struggling bookseller through private sales of its holdings. Liberty Media took a 17 percent stake in Barnes & Noble for $204 million in 2011. After the latest move, Liberty will have just under a 2 percent stake.

Other investors in the bookseller were much less sanguine about the move. The stock slid more than 10 percent on Thursday morning, trading at around $19.79 a share.

The sale removes one of Barnes & Noble’s major backers as the company tries to navigate the changing landscape for books and media. Its Nook business, once considered its brightest hope, has instead sputtered, with sales dropping more than 50 percent in the most recent fiscal quarter from a year ago.

The Reuters story by Phil Wahba and Siddharth Cavale pointed out that the Nook also has been performing poorly:

Prior to that deal, Liberty had been in talks to buy the whole company for $17 per share, or about $1 billion. At that time, Liberty had praised the potential of the Nook.

Instead, the Nook business has faltered, with sales down 50 percent last quarter as the company did not launch a new device for the 2013 holiday season.

Losses from the Nook have run to hundreds of millions of dollars as it tried to keep up with deep-pocketed technology rivals Amazon.com Inc and Apple Inc. Barnes & Noble will continue to develop Nook products, but only with a partner yet to be named.

Barnes & Noble’s retail business has shown much more stability in terms of sales, and profits at its bookstores and college campus stores are up.

Maggie McGrath of Forbes quoted that Liberty tried to put a positive spin on the news, but that investors were still spooked:

“Liberty Media has been a strong supporter of the company and Greg Maffei and Mark Carleton have been and continue to be tremendous partners at an important time in the Company’s history,” Leonard Riggio, Barnes & Noble chairman, said in a statement Thursday morning. “Liberty’s decision to retain a portion of its investment and have active involvement on our board underscores Liberty’s ongoing commitment to Barnes & Noble,” he said, adding that Liberty’s reduced ownership also gives his company greater flexibility to pursue various strategic options (but did not clarify what those strategic options are).

Despite these optimistic tones, other Barnes & Noble investors were not quite as satisfied with the news, sending shares of Barnes & Noble for a near-12 drop in Thursday morning trading. Shares of Liberty, meanwhile, were relatively unaffected by the news, trading for an 0.53% decline Thursday morning. Interestingly, it’s the struggling bookseller that’s had the better 2014 on the market: Liberty is down 7.7% in 2014 trading, while Barnes & Noble is up a whopping 50% for the year.

Part of the Barnes & Noble stock boost traces back to its third quarter earnings report, which was released in February and revealed that the company turned a profit despite a decrease in revenue. However, as Forbes’ Steve Schaefer reported at the time, the Nook tablet business, which was supposed to be a shining star for the company, posted a more-than 50% drop in revenue for the quarter and its profit was even worse. “Sales of the actual device and its accessories dropped 58.2% to $100 million due to both lower volumes and lower selling prices, while sales of content for the Nook fell 26.5% to $57 million,” he wrote, noting that Nook’s quarterly loss was 62 million. The silver lining? This loss was 67.5% smaller than a year earlier.

The Wall Street Journal story by Jeffrey A. Trachtenberg and Martin Peers made the point that the sale could ultimately free up Barnes & Noble for other strategic moves:

The divestiture removes a potential impediment to Barnes & Noble separating its retail stores from other parts of its businesses, an idea the company has considered in recent years. CEO Michael Huseby said in February a split was still being studied. Liberty, one of the biggest investors in the company, had the right to block the sale of any major portion of its business; it will lose that right in reducing its stake.

“Barnes & Noble will gain greater flexibility to accomplish their strategic objectives” as a result of the sale, Liberty Media Chief Executive Greg Maffei said.

One large investor pointed out that the Barnes & Noble investment was a relatively small stake for Liberty, “which has much bigger arenas in which to play.” Liberty lately has been trying to spark a consolidation of the cable-TV industry, among other efforts.

Barnes & Noble shares closed Thursday at $19.12, down $2.99, or 13.5%

Barnes & Noble’s stock rallied 66% between early February and Wednesday, when it closed at $22.11. That followed a stronger financial performance at the company. Mr. Huseby has cut costs, helping Barnes & Noble to report a profit for the third-fiscal quarter compared with a year-earlier loss and despite a 10% drop in revenue.

The retailer also reported a stronger-than-expected holiday performance at its 663 consumer bookstores. Core comparable sales, which exclude Nook-related digital products, were down only 0.5%. for the third fiscal quarter ended Jan. 25, compared to a 2.2% decline in the year-earlier quarter.

So while things aren’t looking totally dire at the retailer, it’s likely another blow to the publishing industry as another large buyer pulls back from purchases. And it doesn’t bode well for the fate of retail book stores despite the turnaround efforts.