NEW YORK — Los Angeles billionaire Ron Burkle's Yucaipa Cos. has filed a lawsuit in Delaware court against Barnes & Noble Inc., saying the bookseller's shareholder rights plan creates a "slanted playing field" in favor of the controlling Riggio family.
Yucaipa also charges that Barnes & Noble's board has breached its fiduciary duties, and said it plans to nominate 3 new directors to challenge the current slate at the company's upcoming annual meeting.
In a statement, Barnes & Noble's board called the complaint a "meritless lawsuit to advance (Burkle's) own self-serving agenda."
A shareholder rights plan, or "poison pill," is generally implemented to deter hostile takeovers. If a shareholder tries to acquire large amounts of stock, companies give other shareholders rights to buy new shares to dilute the value of existing stakes and stave off a change of control.
Per Barnes & Noble's plan, adopted in November 2009, a single investor or group may not buy up more than 20 percent of the company's shares without board approval. Shareholders that already owned more than that threshold at the time of the plan's implentation, like the Riggio family, are restricted from buying more stock. Yucaipa says a trigger of at least 30 percent would be more fair to other shareholders and limit the Riggios' control.
Burkle and his Yucaipa Cos. own about 19 percent of the company's shares. Burkle sought earlier this year to boost his stake to as much as 37 percent without triggering the "poison pill" plan but Barnes & Noble rejected that request.
In the complaint, Burkle's investment firm called the rights plan a "self-dealing scheme" designed to prevent Yucaipa or others from mounting an effective proxy battle. Burkle, who has said he thinks Barnes & Noble shares are undervalued, is seeking greater say in the company's direction. Barnes & Noble has seen sales suffer as it faces tough competition from online retailers and discounters.
Yucaipa is the retailer's second largest shareholder behind Leonard S. Riggio, the company's founder and chairman, who holds a 29 percent stake. His brother Steve Riggio served as company CEO until March, and remains vice chairman. The Riggio brothers and other senior company executives owned a total of about 32 percent of shares as of April 1.
In the complaint, Yucaipa said the current shareholder rights plan "entrenches the Riggios and the other incumbent directors while depriving outside stockholders of the free exercise of the stockholder franchise."
It alleges the plan "makes it extremely difficult, if not impossible, for Yucaipa and Barnes & Noble's other public stockholders to overcome the huge voting advantage the poison pill gives to the Riggio family and their beholden business associates."
Barnes & Noble's board said the shareholder rights plan was adopted last November in response to a "rapid accumulation of a significant portion of Barnes & Noble's outstanding common stock, and is intended to protect our shareholders from actions that are inconsistent with their best interests."
The New York company said it plans to submit the plan for shareholder ratification by the end of November.
Yucaipa says it wants changes made to the shareholder rights plan to allow higher stakes by outside investors and seeks damages and expenses yet to be determined. Yucaipa plans to nominate three directors for Barnes & Noble's board at the 2010 annual meeting, which will be held by Sept. 30.
The suit was filed Wednesday in the Court of Chancery of the State of Delaware. The firm has asked the court to rule on the complaint by mid-July.
Burkle, who made much of his fortune in supermarkets, is a major political fundraiser. He has made unsuccessful attempts to buy newspaper publishers, including Knight Ridder Inc. and Tribune Co.
Barnes & Noble shares fell $1.02, or 4.9 percent, to $20 during afternoon trading.