Activism is alive and well these days. A little while ago, we noted that Barnes & Noble (BKS) was considering its options for its cash burning yet growing Nook business. It seems the company wasn’t alone in that thinking and is now being publicly egged on by Michael Glickstein, CIO of G Asset Management and one of BKS’ largest shareholders (~5% of the shares). The firm filed a 13D (also read the exhibits) asserting that BKS is “substantially undervalued in its current form” and urging the company to separate itself into three different businesses – the brick & mortar store, textbooks and of course, a pure play e-reader business (and digital assets). It suggests a rights offering where BKS could maintain control as one route to accomplish this move.
G has been trying to engage the board for quite some time, but they “think it is important to take action now with a spin-off of the e-reading business…[in order] to take advantage of current high valuations of technology firms.” Until their most recent letter, the bulk of their argument seems to revolve around multiple discrepancies. Essentially, online/tech companies such as Zillow (Z) and LinkedIn (LNKD) have high multiples and so does Amazon (AMZN) which means that BKS should as well. Additionally, their letters note (over and over again) that the current board of directors – including John Malone and Leonard Riggio – has a lot of experience with spinoffs. While I think the directors are aware of their past activities, perhaps G was just trying to ‘refresh’ their memories or say ‘hey guys – make it happen already.’
The most recent letter includes a ‘base case’ sum of the parts analysis placing BKS’ value at a whopping $71/share, including $18/share for the retail business. In other words, a mere 5x+ its current price! I question the firm’s choice of name – couldn’t be more creative than the letter G? – and I am a bit skeptical of the lofty price target. I am sure most shareholders would get excited over half that valuation though. G does note some risks to the plan such as running out of capital or the retail business dying, but is still convinced that this is the best path for the company. It’s worth a read and it isn’t inconceivable that the Nook business could carry some significant value although the choice to engage in a price battle with Amazon’s Kindle seems fraught with risk. We will keep you updated as this story develops, especially if this turns into a spinoff situation.
Disclosure: Author holds no position in any stock mentioned.