Is Barnes & Noble Getting Ready to Go Private?

On Monday, shares of Barnes & Noble (NYSE: BKS  ) fell around 5% in after-hours trading after the company announced the resignation of CEO William Lynch, effective immediately.

Of course, this doesn't come as a complete shock considering Lynch was brought on as CEO in 2010 after running Barnes & Noble's e-commerce unit, and was largely seen as the man who could effectively lead the company's foray into the tablet market with Nook Media. Unfortunately, Barnes & Noble stock fell 17% after the company posted dismal quarterly results two weeks ago, largely thanks to increased losses from the Nook segment, which led to an 8.8% drop in overall comparable-store sales.

At the time, I even went on record to say I thought that drop was merited, especially when we note that core comparable-store sales -- which exclude the Nook and stood alone as one of few bright spots last quarter -- also fell a harrowing 5.8% last quarter.

Thanks?
That's why I also found it curious when founding chairman Leonard Riggio went on to state in Monday's announcement, "We thank William Lynch for helping transform Barnes & Noble into a leading digital content provider and for leading in the development of our award-winning line of NOOK products."

In addition, while a company spokeswoman stated that Barnes & Noble is "in a transition period" and has "no immediate plans to name a CEO," the company also announced the following organizational changes:

  • Michael Huseby, formerly Barnes & Noble's CFO since March 2012, has been appointed CEO of Nook Media and president of Barnes & Noble, reporting directly to Riggio.
  • Max Roberts will continue to serve as CEO of Barnes & Noble's College business, and will now report directly to Huseby.
  • Allen Lindstrom, VP and former corporate controller, has been promoted to CFO, and will also report to Huseby.
  • Kanuj Malhotra, former VP of corporate development, has been promoted to CFO of Nook Media.
Finally, Riggio added that Barnes & Noble is "in the process of reviewing its current strategic plan and will provide an update when appropriate."
 
The billion-dollar question
As it stands, Barnes & Noble's total market capitalization currently sits at almost exactly $1 billion, so, given the company's current troubles, strategic reorganization, and apparent lack of drive to find a CEO anytime soon, I think this raises a billion-dollar question: Is Riggio setting the company up to split and go private? 

After all, remember that in February, Riggio told the board he wanted to buy and take private the company's core retail business -- including the physical stores and the BN.com website -- but not the Nook unit nor the college bookstores.

All of the above moves, which notably keep the businesses segregated from one another, certainly seem to mesh with the idea of a split. Considering the Nook segment resulted in losses for Barnes & Noble of around $475 million during fiscal 2013, you can't blame the guy for only wanting to grab the better-performing brick-and-mortar and online operations.

Even so, I still think it's surprising that Riggio, like Best Buy founding chairman Richard Schulze and his failed buyout efforts a few months ago, would be willing to bet the farm on a business facing such stiff competition in the form of deep-pocketed online behemoths like Amazon.com (NASDAQ: AMZN  ) . Remember, as traditional retailers continued to struggle, Amazon itself managed to increase year-over-year revenue last quarter by 22%, further solidifying its status as the envied 800-pound gorilla in the space.

What's more, Amazon not only benefits from its enormous retail operations and competing Kindle Tablet offerings, but also boasts several other supplementary revenue streams to fill its coffers from: cloud computing services, a self-publishing segment, its Prime video streaming service, and the ever-growing Amazon Studios business.

In the end, though, while I wouldn't be surprised if we do eventually see a bid by Riggio to buy back the best parts of the company he founded, Amazon's long-term threat to businesses like Barnes & Noble is one big reason I certainly wouldn't be willing to speculate on it as a viable investment thesis.

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