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Liberty eyes entry into tablet biz

Malone's bid for Barnes & Noble driven by interest in its Nook e-reader

Liberty Media’s surprise bid for a majority stake in bookseller Barnes & Noble is mystifying Wall Street. But it could be that John Malone is eyeing the retailer’s e-reader Nook and shrewdly positioning Liberty to be a player in digital media and the burgeoning business of tablets, taking on rivals like Apple, Google, Sony and Amazon.

In a bid unveiled late Thursday, Liberty is offering about $1 billion, or $17 a share, for a 70% stake in Barnes & Noble, a bid that represented a 20% premium to the company’s closing price Thursday. Part of the offer stipulates that Barnes & Noble CEO Len Riggio maintain his 30% stake in the company, and continue to play a management role. Malone’s offer comes just days before Barnes & Noble is preparing to introduce a new version of the Nook, which is expected to be less of an e-reader solely and become more tablet-like with apps and video.

“It’s absolutely a play for the Nook,” said James McQuivey, an analyst at Forrester Research. “The real value of B&N right now is the ascent of its Nook platform, which is turning out to be a very solid foundation for building a digital media relationship with millions of consumers. And the fact that the Nook Color is being snatched up as quickly as B&N can make it is good evidence that the business has strong prospects in new directions like web apps and even video.”

On Friday, reaction on Wall Street was mixed. Barnes & Noble shares traded higher by nearly 30%, up $4.25 to $18.36, above Malone’s offer price.

Riggio said last summer that the retail chain was for sale. While B&N is still the No. 1 bookseller in the U.S, with 705 stores and 623 college outlets, it has had to shutter stores recently and faces increasing competition from the likes of Amazon.

Meanwhile, Liberty’s investors seemed baffled by the bid. Liberty Capital’s stock dropped $2.31 to $87.03. Barnes & Noble would be included in Malone’s Liberty Capital business, which currently trades as a tracking stock but is expected to be spun out fully later this year. Liberty Capital’s other businesses include stakes in Sirius XM satellite radio, Live Nation and full ownership of the Atlanta Braves.

Liberty was not offering much in the way of information about its desire to own Barnes & Noble. But in a brief statement released Thursday, it did offer a hint about liking the company’s digital prospects. “Barnes & Noble is the established leader in bookselling and is at the forefront of the transition to digital, with a management team that has demonstrated expertise in operations and positioned the company for growth in a dynamic marketplace,” Liberty said.

Others on the Street, however, disagreed about Liberty’s intentions. By proposing to put the business under Liberty Capital, which is primarily financial investments, said James Ratcliffe, an analyst at Barclays Capital, “the offer appears to be a purely financial proposal to acquire an asset that Liberty management views as undervalued.”

The Borders book chain may have come at a cheaper price for Malone, since it is in bankruptcy, but Borders doesn’t have anywhere near the strong presence in digital that B&N does.”If Liberty could just buy Nook and not carry the stores, it probably would,” said McQuivey. “I wouldn’t be surprised to see Liberty shed half of the retail stores over the next three years to focus on the digital customer.”

The buyout offer also gives supermarket magnate Ron Burkle and his Yucaipa investment firm an exit option from his 19% stake in the company, Ratcliffe said. Burkle accumulated his stake last year in an attempt to overturn the company poison pill provision, but his proxy fight was unsuccessful.

Among Liberty’s other holdings are shopping net QVC and pay cabler Starz.