Friday, March 09, 2007

Barnes & Noble To Go Private?

That is the suggestion of David Scheck of Stifel Nicolaus on the basis that the publishing retail business really isn't suited to the expectations of Wall Street. Scheck went on to suggest that the fundamentals of the company are strong with good cash flow, significant retail presence and store productivity. My initial reaction to the general news coverage was a) things can't be that bad and b) are they trying to tap down expectations and the share price on purpose. Scheck's company views the news of depressed gross margin due to Harry P and the impact of their membership programs as a worse case scenario. By my calculation, they expect a $50mm decrease in net income which represents a 30% decrease compared to 2006.

Stifel Nicolaus believe the company could perform better than management is suggesting and could be a PE target. Strictly speaking an MBO with management currently owning 20+% of the stock. Schecks' target price for the BN stock is in the low to mid $40's. After a dip early in the week, the stock is trading today at just under $38.00 and has a market cap of $2.5billion.

With the over-bearing requirements of financial reporting - evidenced by an on-going investigation at BN - the Riggio's may decide to bail out and indeed go private. While there are peaks and valleys in book retail, BN has been able to remain fairly consistent in delivering top line growth, strong operations and resulting good net income. Additionally, the capital requirements for this business wouldn't be onerous and as such it would make a safe place to put PE dollars for a decent return. Certainly one to keep watch of.

BN Press Release

On a less realistic note, George Gutowski on SeekingAlpha suggests that Jeff Bezos get out his check book and buy BN to consolidate the industry. He makes some interesting claims:
  • Barnes & Noble has announced that its best customers are its worst financial problem. Most other industries make the most profit on their best customers, but not in this case.
  • The book industry has not been able to sell itself other than through price competition. They all seem to offer the same book by the same author as their competitor (either retail or internet) and therefore have not been able to develop additional value added propositions.
  • Acquisition allows the combination of best of breed in both the internet and retail categories. Barnes & Noble can entirely close down poorly performing internet distribution.
This is clearly not going to happen and not even interesting to speculate on.

1 comment:

Mike said...

I believe it was Barron's that ran a story a few months ago suggesting that it would be a good strategy for BN to go private, and even outlining a path to that status that would benefit the Riggios and all shareholders. Let's remember that BN.com has already had a 50-50 partner (Bertelsmann) and was public before being taken back into BN a couple of years ago.