NEW YORK — Book retailer Barnes & Noble Inc., facing a potential proxy fight with shareholder activists unhappy about the company's stock price and strategy, said Tuesday it may put itself on the block – possibly selling the chain to an investment group that would include its founder and biggest shareholder, Leonard Riggio.
The world's largest bookseller said its board is evaluating several options to boost shareholder value in the face of a depressed stock price, including selling the company. Riggio, who holds some 17.9 million shares or nearly 30 percent of the company's stock, said he's considering joining an investor group to buy the retailer.
Shares soared on the news in after-hours trading Tuesday, rising $3.31, or nearly 26 percent, to $16.15. Shares closed the regular session down 98 cents, or 7 percent, at $12.84. The stock has been in free fall since late June, when the company reported a steep fourth-quarter loss and issued forecasts for first-quarter and full-year net income below expectations due to hefty planned investments in digital technology.
Barnes & Noble has been hurting, along with other book retailers, as people focus on essentials in the down economy and limit their book purchases. Shoppers also are shifting away from paper books toward electronic books, much as they have done with music, moving away from CDs toward digital downloads.
Billionaire Ron Burkle, who increased his ownership stake in Barnes & Noble last year to about 18 percent, has been battling with Riggio over changes he wants to see made to corporate governance in order to boost value. Burkle has said he isn't interested in a takeover but expects to propose a slate of three new directors at the next annual meeting, scheduled to be held by Sept. 30.
Barnes & Noble officials have been concerned about an alliance between Burkle and Aletheia Research & Management Inc., an investment fund that holds about 16 percent of the company's outstanding shares. A call to Burkle's investment arm, Yucaipa Cos., for comment on the latest news wasn't immediately returned.
Barnes & Noble has been bullish on the future of digital books and introduced its Nook e-reader and its online e-bookstore last October, well ahead of rival Borders Group Inc. It has been engaged in price wars with Borders and Amazon.com to attract readers to this new market.
The company said in June that it expects the overall book market to grow from $23 billion to $27 billion over the next four years, including $6 billion higher e-book revenue and a $2 billion lower revenue in regular books. The company plans to close six to 10 stores during each year over the next three years, but does not plan a widespread downsizing as it focuses on e-book growth.
It's not clear why Barnes & Noble, which is not hurting as much as Borders, made today's announcement, said Michael Norris, a senior analyst at Simba Information.
"There are companies that do this because they have to and there are companies that do this because they have impatient shareholders and I'm not sure what's driving this kind of statement," he said. "It just seems daft."
Borders, the nation's second-largest book retailer, also has struggled with falling demand and increasing competition from discounters such as Wal-Mart Stores Inc. and online book sellers. It has been more deeply hurt than Barnes & Noble, but the company has been cutting costs and improving its business. It hopes to reinvigorate itself with a $25 million investment from financier Bennett LeBow – who became the company's largest shareholder and chairman and later was named CEO.
Barnes & Noble has always been one step ahead of Borders, Norris said, noting it was first with an online book sales presence and first in the digital reader realm. But now Barnes & Noble seems to be following in Borders' steps. In March 2008, the Ann Arbor, Mich., retailer announced it was considering putting itself up for sale. Borders' shares slumped on the news and kept falling when nothing developed, Norris noted. Barnes & Noble shares could see a similar fate.
"What's going to happen in a few months if they can't find a suitable buyer? If they can't follow this up with anything?" he said.
Barnes & Noble said a committee of four directors will evaluate its options. The committee has selected Lazard as its financial adviser and Morris, Nichols, Arsht & Tunnell LLP to serve as its legal adviser. The board said there is no specific timeline for the review.
Riggio, who first started his business as a college bookstore in 1965, said Tuesday that no matter what happens he is "eager to remain with the company and see it through the challenging years ahead."
The New York-based company, which operates 720 stores in 50 states, is due to announce its fiscal first-quarter results on Aug. 24.