Peter Kafka

Recent Posts by Peter Kafka

Barnes & Noble Spins Off Nook, With Help From Microsoft (Updated)

Barnes & Noble is breaking itself apart, by spinning off its fast-growing digital unit from its slow-growth bookstore business. And it’s doing so with help from Microsoft.

Redmond will put $300 million into the new business at a $1.7 billion valuation, and will get 17.6 percent of the new company. That will leave Barnes & Noble with a stake in the new unit worth about $1.4 billion.

That’s nearly $600 million more than the value the market placed on all of Barnes & Noble until today. Not surprisingly, Barnes & Noble investors love this idea, and are bidding up the stock a staggering 80 percent this morning.

(Update: For now, this isn’t a formal spinoff, and the new unit will remain a Barnes & Noble subsidiary. It’s reasonable to assume that Barnes & Noble and Microsoft will attempt to formally cleave the digital unit into a standalone company down the road, though the release announcing the deal includes plenty of hedging language in case that doesn’t happen: “The company intends to explore all alternatives for how a strategic separation of Newco may occur. There can be no assurance that the review will result in a strategic separation or the creation of a stand-alone public company, and there is no set timetable for this review.”)

A few details:

  • The new company will also include Barnes & Noble’s college book-selling unit.
  • Microsoft’s upcoming Windows 8 OS will now include a Nook app.
  • The deal includes a settlement to a patent battle between the two companies. It’s worth noting that the Nook runs on a “forked” version of Google’s Android mobile operating system.

The deal is a bit of a magic trick for Barnes & Noble, which will manage to extract an extraordinary amount of value from a business that didn’t exist a few years ago — and will now have a currency to help it compete for Silicon Valley talent.

Meanwhile, Microsoft, which had completely ceded the e-reader market to Amazon, Apple and everyone else, gets into the business via a very small investment.


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