One important note about Monday’s transaction is that it isn’t exclusive, and Barnes & Noble can still take on additional partners — like Google, for instance.
Barnes & Noble's Nook Unit Is Worth More Than Its Parent Company - NYTimes.com
Of all the details that stand out from Microsoft’s deal for an 18 percent stake inBarnes & Noble’s e-reader unit, perhaps the biggest one is this: the Nook division is now worth $1.7 billion.
That is nearly double what Barnes & Noble’s entire market capitalization was on Friday. Indeed, it’s worth more than what the parent company has been valued at any time since mid-2008.
What is behind Microsoft’s valuation of the unit is a bit of a mystery, since Barnes & Noble doesn’t break out the Nook’s financial results in its earnings statements. William J. Lynch Jr., the bookseller’s chief executive, told DealBook in a telephone interview on Monday that the company would begin reporting the new division — which also includes the higher education business — separately in the near future.
Andy Lees, a president at Microsoft, said that the software giant based its valuations on the assets that would be contained in the to-be-renamed unit. He added that he believed that the college business had “a lot of synergy” with the Nook operations.
The deal is even richer than it first appears. Microsoft is pouring $300 million in the division to gain a 17.6 percent stake. But it is also paying $60 million a year over three years as an advance on revenue-sharing arrangements, according to regulatory filings. The software company is also paying $25 million over the next five years to help the business acquire new content, which is likely to include the purchase of foreign rights for digital media.
“This is a great win for shareholders,” said Barry Rosenstein, the founder of Jana Partners, one of Barnes & Noble’s largest shareholders. “When we invested, the market was ascribing no value to the Nook business, which was absurd. Management today has taken decisive action for shareholders to address this issue and unlock substantial value.”
What was announced on Monday was the product of months of talks between Barnes & Noble and potential partners that began before the start of the year, Mr. Lynch said.
“We kind of came to each other at the same time,” he said. “This deal is very much, ‘Hey, this is a great deal for Microsoft, and a great deal for Barnes & Noble.’ ”
The bookseller had been fielding offers from a number of companies since it accepted an investment from Liberty Media last spring, according to a person briefed on the matter. It finally began holding serious negotiations with Microsoft about two months ago, this person added. Driving the two companies was a mutual rivalry with Amazon.com, whose Kindle devices and ecosystem towers over the electronic content landscape.
The discussions were held at the highest reaches of both companies, including Mr. Lynch and Mr. Lees, as well as Microsoft’s chief executive, Steven A. Ballmer.
“It was important for us that the teams were working together every day,” Mr. Lees said.
Mr. Lynch and Mr. Lees said that the discussions were wide ranging and extensive. One important note about Monday’s transaction is that it isn’t exclusive, and Barnes & Noble can still take on additional partners — like Google, for instance.
The intensity and expansiveness of the talks left little time for celebration by the time the deal was signed at the end of the weekend. Mr. Lynch said that he had slept perhaps four hours between the signing of the transaction and the announcement of the investment.
“I have a lot less hair than I did 100 days ago,” he joked.
Barnes & Noble was counseled by the law firm Cravath, Swaine & Moore, while Microsoft was advised by Simpson Thacher & Bartlett.
Azam Ahmed contributed reporting.
Barnes & Noble's Nook Unit Is Worth More Than Its Parent Company - NYTimes.com
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