Barnes & Noble (BKS 6.51, +1.0500, +19.23%) is trading sharply higher today after
announcing last night that it has decided to enter into a formal review process
to evaluate strategic alternatives. So what is prompting them to do this? This
decision follows expressions of interest from multiple parties in making an
offer to acquire the company, including from the company's Chairman, Leonard
The Board of Directors has appointed a Special Committee of independent directors to lead the strategic review process. The Special Committee will be advised by independent legal and financial advisors. Mr. Riggio has committed to support and vote his shares in favor of any transaction recommended by the Special Committee. However, there can be no assurance that a transaction will be consummated.
That's not all. BKS went on to disclose that it has observed rapid material accumulations of its stock by a party or parties that cannot be identified. In light of the impending strategic alternatives process and such share accumulations, the Board also announced the adoption of a short-term Shareholder Rights Plan. Some call this a "poison pill" in case BKS needs to prevent an unwanted suitor.
The adoption of the Rights Plan is intended to maximize the likelihood of a successful outcome for the strategic alternatives process. Under the terms of the Rights Plan, the rights will expire on October 2, 2019. In the absence of further action by the Board, the rights will be exercisable if a person or group, without Board approval, acquires 20% or more of Barnes & Noble's common stock or announces a tender offer which results in the ownership of 20% or more of the company.
If the rights become exercisable, all rights holders (other than the person triggering the rights and related parties) will be entitled to acquire preferred shares equivalent to BKS common stock at a 50% discount. The rights will trade with Barnes & Noble's common stock, unless and until they are separated upon the occurrence of certain future events.
Barnes & Noble is the nation's largest retail bookseller, and a leading retailer of content, digital media, and educational products. The company operates 629 Barnes & Noble bookstores in 50 states and it operates BN.com. Its Nook Digital business offers a lineup of popular NOOK tablets and eReaders and an expansive collection of digital reading and entertainment content through the NOOK Store at nook.com. The website features digital books, periodicals, and comics, and offers the ability to enjoy content across a wide array of popular devices through Free NOOK Reading Apps available for Android, iOS, and Windows.
In sum, this is some welcome news for BKS shareholders. This retailer has been struggling to compete with online competitors, most notably Amazon (AMZN). While its former rival Borders Group (formerly BGP) went bankrupt a few years ago, Barnes & Noble has been surviving. Results have not been great and BKS has been laying people off. BKS also has tried some turnaround plans but without a lot of success. Also, its digital offerings have not been that popular.
Despite all of that, BKS is still profitable on a full year basis (big EPS in the JanQ holiday period is why it's profitable on a full year basis). In some ways perhaps, Borders going away helped Barnes & Noble to survive as really the only major bookstore chain left. BKS has tried different things, like expanding its retail offerings to include gifts etc. It also has been adding full-service restaurants. It will be interesting to see what transpires in the coming weeks and months.
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