John Malone Can't Be This Stupid

If a rival jumps off a cliff, do you follow suit?

Weeks after Dish Network's (Nasdaq: DISH  ) Charles Ergen's light-headed decision to outbid everyone else for Blockbuster's remains, Liberty Media's (Nasdaq: LBTYA  ) John Malone is upping the ante on crazy with last night's $17 all-cash offer for Barnes & Noble (NYSE: BKS  ) .

Your move, Ergen.

Can you turn up the stupid? There's probably a vinyl record superstore still left standing somewhere that you can buy. Surely there's a warehouse out there brimming with Beanie Babies, Pokemon cards, and Ashley Simpson CDs to dust off.

If all else fails, chewing on glass is always an option.

Dear John letter
What are you doing, Malone? You're a brilliant investor. You have assembled a mosaic of portfolio pieces at attractive price points.

No one may ever top your Sirius XM Radio (Nasdaq: SIRI  ) deal, where you collected the equivalent of 2.7 billion shares solely for the sake of loaning the then-struggling satellite radio provider some money at high interest rates. That stake is now worth $6 billion!

You won't catch that kind of lightning in a bottle with B&N. Instead of warming up to Howard Stern, I'm going to serve up a stern warning.

B&N is unlikely to ever be worth the $1 billion that the company is now valued at. Physical distribution of books is dying, and B&N is hemorrhaging money on its Nook e-reader.

Analysts see the chain losing money yet again this new fiscal year, and it's not as if the pros are low-balling here. B&N has missed Wall Street's bottom-line targets every single quarter over the past year.

There's no easy way out
The cavernous bookstores can't be saved, and surely Malone knows this. Malone's interest here has to rest largely on the Nook, but what's the point? Amazon.com (Nasdaq: AMZN  ) has cornered the market, and the recent price cut to as low as $114 for an ad-supported reader is only going to smash hardware margins even more.

The Nook and the tablet-esque Nook Color are impressive, but this seems like a lousy reason to buy all of B&N.

At least Ergen got in on Blockbuster at a reasonable price. He can liquidate the physical DVD stores to focus on digital delivery and get most of his investment back -- if he dismantles quickly. I'm not sure if even liquidators would know what to do with B&N in an asset sale. What's the next generation going to do with a Garfield bookmarker?

Earning the right to be stupid
Still, without knowing Malone's endgame it's hard to insist that he will regret this offer. He's struck a ton of lucrative media deals in his time. Me? Like every other alert cynic, I simply lean on the luxury of having seen B&N fade before my very eyes over the past few years.

There is no retailer of physical media that will be worth more in five years than it is now. Digital distribution is a wrecking ball to both bricks-and-mortar. We saw it happen to CDs. It is happening now to DVDs and books.

I'm going to miss bookstores. I remember when they were relevant. I still find myself strolling through the racks, if only to load up on the book titles that I will order through Amazon for less. Maybe it's just me, but half the time there isn't even someone at the register outside of the holiday shopping season. B&N has conceded the sale by choosing to go with an empty net. Its resources -- and cobwebbed profitability -- have gone to promote an e-reader that isn't a Kindle and a tablet that isn't an iPad.

Why anyone would want to pay to inherit the irreversible fade and take on the imploded margins is beyond me. Why that someone is Malone is a shocker.

You better know what you're doing, Malone -- because B&N sure doesn't.

Can Barnes & Noble be saved? Share your thoughts in the comment box below.

Motley Fool newsletter services have recommended Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Longtime Fool contributor Rick Munarriz owns a Kindle and iPad, but he uses his iPad a lot more. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


Read/Post Comments (4) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 20, 2011, at 1:08 PM, crankly09 wrote:

    Malone is Malone, you are a 50 cent blogger.......I think I'll go with Malone.

    Moron.

  • Report this Comment On May 20, 2011, at 4:27 PM, sepaton wrote:

    Every blogger on this fool.com site including Rick Munarriz has been wrong about BKS.

    I don't mean wrong in the sense of predicting the wrong movement of BKS, but wrong on their information about BKS.

    Rick is as clueless as his other Fool.com bloggers about BKS. Take a look at Fool.com articles on BKS over the past 4-weeks and you will see what I mean. All lightly researched, all wrong, all negative on BKS, or if not negative at best neutral. All favoring Amazon & Apple. Yea no kidding sherlock of course it's easy to place your bets on those two. Neither one of those stocks is going anywhere... but let's always favor them in any discussion... that's easy. Oh correction, Amazon is probably going down 10% once the state tax guys break them which will happen within 6-months.

    Last week one of the fool.com article bloggers even highlighting Walmart as a potential ebook/digital content leader... I got a kick out of that one.

    Rick makes no mention of the 1 million android app downloads that happened on the nook color the first week they were available to download. Any idea how that can scale Rick...? and what that translates to...? Hint, you will need a calculator.

    My guess is 1 million goes to 5 million pretty quick and that's just apps... add to that ebooks. It is not a stretch to see this translate to $500+ million in annual profits from apps and ebooks within 24-months.

    Rick I think everyone is pretty solid on the physical bookstore not being here for the long term and no one needs people writing articles stating the obvious just to get a higher word count.

    Anyway enough of my rant..., obviously many fool.com shorts on BKS got flushed out today..., ouch.

  • Report this Comment On May 23, 2011, at 10:16 PM, kthup wrote:

    Vitriol, according to the Cambridge Dictionary, means "violent hate and anger expressed through severe criticism." I was going to describe this article by The Big Aristotle as vitriol, but typing out the full definition seemed warranted in this case. With the all the shouting and saliva flying around this one, we've got plenty of subtitles for a Hitler rage video here.

  • Report this Comment On May 24, 2011, at 12:17 AM, DNAstock wrote:

    You're right, Rick. He's not!

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