Barnes & Noble Stock Fizzles as Nook Buyout Rumor Fades

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: After gaining 24% last Thursday, Barnes & Noble (NYSE: BKS  ) shares were down as much as 13% today after a new report seemed to kill the rumor that sent the stock soaring, which was that Microsoft (NASDAQ: MSFT  ) was aiming to buy the entire Nook e-reader division.

So what: The blog TechCrunch had said last week that Microsoft was gearing up to buy the e-reader for $1.7 billion, but today business news site Insider Monkey said, "Nothing imminent is happening," quoting "a highly placed source." Shares of the bookseller bounced off their session low, but still finished down 9.5%. Microsoft shares, meanwhile, gained on the news, finishing up 1%.

Now what: I had suggested last week that the rumor-driven pop in Barnes & Noble's stock was a good time to sell not only because rumors can be dangerous and often never come true but also because the book retailer is essentially just a dusty skeleton without the Nook. If TechCrunch's rumors are true, the value of the Nook would top Barnes & Noble's entire market cap by 36%. In other words, Microsoft could buy the whole company for less than its supposed offer, pending board approval, and shutter the stores. Of course, the cash infusion would be nice if the deal actually went through, but without the Nook there's little to expect from the bookseller's future. Brick-and-mortar book sales are dying, and analysts see significant losses for the company both this year and next. Those are two bright red flags.

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  • Report this Comment On May 14, 2013, at 12:32 PM, mapompei wrote:

    "Highly placed source" makes it sound like inside information, which is illegal-one risks incarceration if convicted.Insider Monkey (the name suggest the quality of information, process and importance of opinions formed from it) has had its 10 minutes of attention -serious money knows to stay away from any kind of "Monkey" business.

    What intelligent person dosn't like to go to a book store to see what is available-the same is true with a campus book store. You don't know what you don't know until you see it or hear it.

    The nook has huge potential to lower publication cost and improve margins for companies in that business and increase the ability to develop predictable reacurring streams of revenue. Why can't a person have the convienence of having a device to carry with them several text books at a time for class or study and yet still go to the library or book store to aquire more for pleasure.

    I will never forget when my school district added a bond millage for more than $100 million dollars to build or remodel some of the buildings. The first day my kids went to school they were told they had to share books because they did not have enough for the students-many were in poor condition. How many schools don't have the resources to sustain or provide the tools, teachers and materials to their students? I believe it is too many and there is a need to develop a Nook like tool into something powerful and rewarding to all stakeholders.

    It is best if companies focus on their core capabilities and expertise-a bricks and morter retail store is not a business that Microsoft is known for, but it is what Barnes and Noble is known for. Why can't there be a combination of suiters for this stock -in other words game theory in action to provide good results for several or all instead of one?

    Do you think parents are not going to stop taking their kids to the book store to pick out a book or even learn what a book is. What more efficient way is there to show another person, the information and pleasure that is possible for them to aquire than the book store. People want to take it home know, rather than leave empty handed-there may not really be a savings when all costs are considered to leave a and buy the book later online. A book store is an entertainment destination for intellectuals and those who have the ability to become one. I fear that those who write about the demise of the book store are intellectually challenged and just don't get it. How impersonal is it to give a gift card rather than a physical object that shows you took the time to present something that should be interesting to the gift receiver.

    Forecasting the demise of bookstores is like predicting the same for physical learning institutions. We learn through interaction and by being near those or publications who may see things differently or have the ability to share ideas and information in a way that some can understand better than just one myopic way. Bookstores and public schools both have inefficiencies that could be reduced for the better of all. One needs imagination of what could be, rather than what is on a regression line observed by those who don't understand that the direction of the line can change- until it already has many periods later. Fair value is aprox. $33 in my opinion.

    M.A. Pompei

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