Is Barnes & Noble the New Borders?

By Rick Aristotle Munarriz | More Articles
August 3, 2011 | Comments (3)

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I guess I'm not the only one who's not buying into a storybook ending for Barnes & Noble (NYSE: BKS ) .

This morning's New York Post is hearing that a deal with Liberty Media's (Nasdaq: LBTYA ) John Malone to buy 70% of the ailing bookseller "looks shaky," according to a source briefed on the process.

Shares of B&N soared three months ago, when Malone began negotiating a deal that would value the cavernous bookstore at a cool $1 billion. The stock also turned higher when rival Borders revealed that it would liquidate its remaining stores.

Having Malone step up validated the bookseller and its growing, yet unprofitable, e-reader business. From DirecTV (NYSE: DTV ) to Sirius XM Radio (Nasdaq: SIRI ) , Malone has a knack for landing chunky stakes in winning companies at opportunistic times.

The Sirius XM nibble was classic, with Malone's holding company receiving what is now the equivalent of 2.7 billion shares -- worth more than $5 billion at the moment -- simply for letting the satellite radio provider borrow money at a ridiculously high interest rate.

The difference here is that Sirius XM was a company on the ropes, but with an undeniably bright future as the only game in town when it comes to satellite radio. Sirius XM turned profitable shortly after Malone's investment.

What will the future be for a chain of mammoth-sized bookstores? If Borders couldn't find a buyer willing to keep the bricks-and-mortar operator open, how will B&N fare any better as books continue to go digital?

Malone's no dummy. He knows the days are numbered on that front. The meaty angle here is the Nook, giving the buyer of B&N the only legitimate contender to Amazon.com's (Nasdaq: AMZN ) Kindle.

However, even B&N couldn't imagine that Amazon's e-reader that originally hit the market at $399 four years ago has come all the way down to as little as $114. Amazon's margins have been crushed in recent quarters, but can a potential buyer of B&N stomach the price war that may still end badly for the Nook?

We're now likely weeks away from Amazon's debut of an entry-level tablet that may eat into the Nook Color's niche. Waiting -- in Malone's case -- is not only prudent, but likely the best way to secure an even lower price for B&N if he's still up for the challenge.

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

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Motley Fool newsletter services have recommended buying shares of 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 can't remember the last time that he actually bought something at a book superstore. Can you? 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 (3) | Recommend This Article (2)

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 icon found on every comment.

Report this Comment On August 06, 2011, at 11:56 AM, David369 wrote:

Malone didn't get rich by being dumb. He's going to pay much less than B&N is hoping for.
Report this Comment On August 09, 2011, at 5:02 PM, JBecket1 wrote:

Unlike Borders, Barnes & Noble found a niche that they can fit into while printed books are becoming less and less popular: eBooks. That's what is keeping them alive, and strong. Barnes & Noble is a great company, but like many nationwide businesses it can have some weak spots. I was surfing the internet and I found this site where people can vent about poor customer service or products they received... it can get really funny. I would recommend you to check it out here: http://ventme.com/companies/view/86
Report this Comment On August 09, 2011, at 5:14 PM, RLAprof wrote:

I agree that B&N has a niche in the eBook industry. When I was investigating self-publishing a college textbook, I found their plan to be much more realistic. Also, they are already on a majority of college campuses. Can't say, however, that this is enough to keep them afloat, given the profit margin and their need to keep brick-and-mortar stores open.

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