Describing its stock as "significantly undervalued," Barnes & Noble (B&N) last week essentially put itself up for sale. As e-books erode its brick & mortar business, pressure from shareholder activists were said to have prompted the move.
B&N stated: "The board has concluded that a review of strategic alternatives is the appropriate next step to take full advantage of our compelling digital opportunities and to create value for shareholders, customers, and employees."
B&N's chairman Leonard Riggio, its largest shareholder with about 30 percent of the company's stock, told its board that he intended to consider participating in an investor group to acquire the company.
But any deal faces complications. A report from Reuters said Mr. Riggio has not found any backers. Any interested PE firms would also have to reconcile Mr. Riggio's stake as well as an ongoing lawsuit against the company by Ron Burkle, who owns 19.2 percent of B&N's stock.
Ultimately, however, any prospective buyers would have to bet on a B&N recovery.
On the positive side, analysts say Barnes & Noble's brand remains strong. It also managed to quickly garner a 20 percent share of the e-books market and expects online sales to rise 75 percent to $1 billion this fiscal year.
"They still have a sizable business -- they are the world's largest physical bookseller and that business probably has a very long tail," Morningstar analyst Peter Wahlstrom told Reuters.
Some also saw benefits from going private.
"Going head to head with Amazon and trying to become a different company with the same investor base is tough," Mike Serbinis, CEO of Kobo Inc., an online digital-book seller in Toronto, told The Wall Street Journal. "Going private would enable them to transform the business without the pressure of quarterly earnings. It's hard to make the transition that they are trying to make under the constant eye of the market."
On the downside, any gains in online sales might be more than offset by brick & mortar declines. With fierce competition from Amazon and Apple, margins from online growth are expected to be leaner than brick & mortar operations.
Veteran Journal reporter Jeff Trachenberg noted that the irony that the once "fearsome retailing force" that terrified both independent book stores as well as publishing houses has quickly become antiquated through technological advances.
"Anybody with their eyes open knows that the retail book market is increasingly challenged," Mike Shatzkin, chief executive of Idea Logical Co., a New York consulting firm, told the Journal.
Discussion Questions: What do you make of the struggle for control of Barnes & Noble? What does it say about the future of brick & mortar book retailing?