Microsoft Isn't Buying Barnes & Noble

Barron's stirred up an interesting notion over the weekend.

Since Microsoft (NASDAQ: MSFT  ) already shelled out $300 million for a 17.6% stake in Barnes & Noble's  (NYSE: BKS  )  college bookstore and Nook business last year, and Barnes & Noble's founder wants to take the company's namesake book retailing business private, why doesn't Mr. Softy just snap up the entire company?

"Ownership of B&N would jump-start Microsoft's retail strategy and give it control of 677 bookstores," Barron's argues, suggesting that Microsoft could pay $25 a share -- or $1.75 billion -- and gain control of the entire company.

The stock is naturally opening higher this morning on the speculation, but it just doesn't seem realistic.

Sure, Microsoft has been known to overpay for acquisitions and strategic alliances. It's silly that way. However, what would it really gain in Barnes & Noble?

Bricks and mortar
I hate to sound harsh, but Barnes & Noble stores are growing more irrelevant with every passing year. Physical books are dying, and that will result in Barnes & Noble migrating to smaller stores in the future. Sales shrank 10% at the retail level for Barnes & Noble, and this is as it continues to benefit from the prior year's shuttering of rival Borders.

Using the bookstores as a way to gain retail ground with Apple doesn't make sense.

There's no way that Microsoft could fill the cavernous Barnes & Noble stores, which also happen to be largely located in strip malls that lack the foot traffic of Apple's smaller footprint in shopping malls. If Microsoft wanted that girth, it could've picked up Borders' remnants for a pittance two years ago.

The last thing that Microsoft wants is an intimidating superstore concept. You can dream up a cool Xbox gaming lounge and areas devoted to different product categories that feast on Windows, but who is actually going to set foot inside a mammoth Microsoft Store?

The thinning ranks of leaf-turning bibliophiles may be regulars at Barnes & Noble, but there will be no need for folks to continue hitting up a Microsoft-centric retail outlet with books at a time when media is going digital.

Big Microsoft on campus
The division that held up the best in Barnes & Noble's latest quarter is its 678-unit college bookstores business. It suffered a mere 2% slide in revenue, and the thinking here is that Mr. Softy can begin to gain influence with younger users here if it can cash in on both the campus stores and namesake locations.

"Microsoft could create a store-within-a-store with its Surface tablet, and other products in over 1,300 stores, including those at universities, where Apple is now a student favorite," Barron's argues.

That's just crazy talk.

Does anyone really think that Microsoft taking the keys to hundreds of campus bookstores will find coeds dumping their iPhones and Android smartphones for a Windows-fueled Lumia? College bookstores will inevitably also go digital, but it won't be on a Surface. Apple's iPad remains the tablet of choice, and Android gadgetry continues to gain market share.

Students aren't going to flock to a mobile operating system that will be more expensive than Android and less of a tastemaker than iOS. This is as silly as arguing that Hewlett-Packard should buy up the company's college bookstores.

"Hey, class, next semester we're all going webOS!"

Nook on the line
Keep that HP image fresh in your mind, because Microsoft's investment in Nook is starting to seem a lot like HP's decision to buy Palm to get its hands on the then fading webOS.

Nook is already an insult to Microsoft. A year after Mr. Softy's investment, the Nook tablet is still an Android-flavored device. Switching operating systems on a device that's already fading in popularity -- sales this past holiday quarter plunged a whopping 26% -- would only hasten its mortality.

Microsoft made a bad bet last year, and it knows it. Throwing good money after bad would just be silly.

Amazon.com has crushed Nook with its Kindle, and once we step up from stand-alone e-readers to tablet e-readers, the Kindle Fire, iPad, and a growing fleet of Android devices are the market leaders.

A couple of years ago, Microsoft could've cashed in on the initial Nook popularity, making it the default e-book solution for the eventual Windows 8 tablets. Now it's too late. Nook is fading, and that's rarely reversible.

Just ask HP. It's still smarting after that $1 billion Palm buyout.

The ultimate deal breaker
If none of these reasons are convincing enough to explain why Microsoft would be nuts to consider swallowing Barnes & Noble whole, let's imagine what it would do to the software giant's stock price.

Microsoft isn't afraid of cutting 10-figure checks. It did so in buying Skype, aQuantive, Yammer, and Fast Search. It has committed as much for alliances with search and smartphone companies that may be laggards but provide volume to amplify its reach in areas where it's lacking.

Yes, Microsoft overpaid in nearly all of those cases, but at least the market understood the rationale. The tech bellwether was simply trying to make up for lost time by paying for skin in growing industries.

Barnes & Noble wouldn't make sense to the market. It's not about the $2 billion investment. Microsoft has that money to burn. It's what it would communicate to investors -- the desperation and resignation -- that would send its stock lower.

This deal isn't happening. 

More on Microsoft
It's been a frustrating path for Microsoft investors, who've watched the company fail to capitalize on the incredible growth in mobile over the past decade. However, with the release of its own tablet, along with the widely anticipated Windows 8 operating system, the company is looking to make a splash in this booming market. In this new premium report on Microsoft, our analyst explains that while the opportunity is huge, the challenges are many. He's also providing regular updates as key events occur, so make sure to claim a copy of this report now by clicking here.


Read/Post Comments (1) | Recommend This Article (0)

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 March 04, 2013, at 3:29 PM, benrhanson wrote:

    I've said this before, but I think buying out the Nook store and including it with every Windows 8 phone/tablet/computer could be valuable, the way that Apple and Google have their ebook stores front and center. Anything else Barnes and Noble has to offer would be a waste of time for Microsoft, in my humble opinion.

    (and this is as someone who loves going to his Barnes and Noble, loves his Nook and also enjoys his Windows Phone and tablet. Sentimentality makes me WANT them to merge, but I see the realities.)

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2291718, ~/Articles/ArticleHandler.aspx, 11/24/2014 11:29:24 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement