It's official. Only a few days ago -- and much to investors' delight -- Barnes & Noble (NYSE: BKS ) finally confirmed plans to separate its money-bleeding Nook Media business from its slightly less unhealthy retail operations.
Upon reading the news, my mind shifted to one person: Leonard Riggio. He's Barnes & Noble's founder, chairman, and single largest shareholder. And I think soon, he could make a renewed move for Barnes & Noble's retail business.
Here's what brought us to this point
Remember, back in February 2013, Riggio made clear his intent to submit a proposal to acquire all the assets of Barnes & Noble's retail operations. That plan would have effectively left the unprofitable Nook business behind, allowing Riggio to focus the company's attention on propping up its more easily salvageable brick-and-mortar operations.
In the meantime, in May 2013, Barnes & Noble apparently came close to offloading Nook Media to Microsoft. The tech giant, for its part, had already plunked down over $300 million for a 17.6% stake in Nook Media in 2012 and was reportedly nearing a $1 billion offer to buy the remaining stake it didn't already own.
But when that didn't happen, and as the performance of both segments continued to spiral downward, Riggio ultimately suspended his quest to gobble up the best of Barnes & Noble last August. Perhaps also sensing an unnecessary distraction caused by his actions, Riggio stated that "it is in the company's best interests to focus on the business at hand." However -- and this is where last week's development gets really interesting -- Riggio still insisted he reserves "the right to pursue an offer in the future."
So where does that leave investors now?
Despite its losses, Barnes & Noble has certainly worked to maximize the value of Nook Media up until now. First, it reduced Nook Media's EBITDA losses to "just" $217.6 million in fiscal 2014, which was a massive improvement over Nook's jaw-dropping $480.4 million loss the previous year. Now, Barnes & Noble is in the process of shifting Nook Media's business away from its previous hardware-centric focus, and toward becoming a central platform for higher-margin digital content.
Meanwhile, Barnes & Noble's retail business once again remained a quasi-bright spot last quarter, with "Core" comparable store sales -- which excludes sales of Nook products -- falling a manageable 1.9% year over year. Still, Retail achieved fourth-quarter EBITDA of $53 million, which was essentially flat over the same year-ago period.
When could it happen?
All things considered, Barnes & Noble's retail business appears to have plateaued, which lends credence to the company's assertions that it still has hope for maintaining sustained profitability over the long term. And for Riggio, I'd venture to guess the prospect of doing so in the private sector -- which means removing the pressure of appeasing Wall Street's fickle quarterly demands -- would seem all that much more attractive right now.
Of course, the absence of an interested buyer means Barnes & Noble is essentially "selling" Nook Media to shareholders. According to last week's press release, the separation of the two businesses is expected to be complete by the end of the first quarter of 2015. When that happens, don't be surprised if Barnes & Noble's founder makes his move.
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