Barnes & Noble Jumps on Report It's Nearing Sale to Elliott

(Bloomberg) -- Barnes & Noble Inc. surged after a report that the company is close to a deal to sell itself to Elliott Management Corp., the New York hedge fund.

Two parties have emerged as the most likely buyers for the book retailer, people with knowledge of the process told Bloomberg News. These are Elliott and Readerlink LLC, a private book distributor based in Oak Brook, Illinois, according to the people, one of whom said Elliott’s offer looks more attractive.

Chairman Leonard Riggio, the company’s largest shareholder, would be part of the Readerlink deal, the people said. A decision by the company was expected in the coming days, one of the people said.

The Wall Street Journal earlier reported that Elliott was the front-runner in the process, while the Financial Times said that Elliott would offer $6.50 a share in a deal that values the chain at $476 million.

The shares rose as much as 36% to $6.24, the most since 2012. Following the stock gain, the company’s market capitalization inched above $440 million.

Elliott, run by the billionaire Paul Singer, has experience in the book business. It acquired Waterstones, a U.K. book retailer, last year. At the time of the purchase, the company cited the chain’s “huge and loyal customer base.”

Barnes & Noble, with more than 600 stores, has tried strategies such as offering food and coffee and selling non-book merchandise, but has failed to stem the onslaught of Amazon.com Inc. Along the way, it’s weathered self-inflicted wounds and internal drama. A big investment in its Nook e-book device -- a competitor for Amazon’s Fire tablets -- was ultimately a bust.

Despite the relentless competition from Amazon, Barnes & Noble has managed to somewhat stabilize its business over the past few years, with revenue declines narrowing to a drop of 3.1% last year. The retailer still generates cash -- sales were almost $3.6 billion last year -- and the little outstanding debt on its balance sheet isn’t due until 2023. The company has also spent the past few years closing weak stores or moving them to better locations.

Pricing Power

U.S. book publishers may also have incentive to support the chain, since its disappearance would give Amazon even more power to dictate prices in the industry. And while the online giant sells more books, Barnes & Noble is still important for marketing because of book tours and in-store merchandising that can’t be replicated online. Amazon, meanwhile, has been opening book stores, but has only has about 20 so far.

Riggio took over as chief executive officer on an interim basis after his predecessor, Demos Parneros, was fired without severance a year ago. The dispute between Barnes & Noble and Parneros has prompted a court battle, with the company accusing him of misconduct that included sabotaging an earlier sale of the company.

In October, the company said it was considering a sale to several interested parties, including Riggio. Riggio had previously expressed interest in buying Barnes & Noble but later withdrew.

Barnes & Noble declined to comment. Talks are ongoing and the company could still choose not to pursue a sale, the people said.

To contact the reporters on this story: Lauren Coleman-Lochner in New York at llochner@bloomberg.net;Scott Deveau in New York at sdeveau2@bloomberg.net;Matt Townsend in New York at mtownsend9@bloomberg.net

To contact the editors responsible for this story: Rick Green at rgreen18@bloomberg.net, Jonathan Roeder, Kevin Miller

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