By Chelsey Dulaney And Jeffrey A. Trachtenberg
Microsoft Corp.'s flirtation with Barnes & Noble Inc. has
ended, clearing the way for the nation's largest bookstore chain to
get on with its plans to split itself into two separate public
companies.
Barnes & Noble said Thursday that it is buying out
Microsoft's 16.8% stake in Nook Media LLC for about $125 million in
cash and stock.
Microsoft agreed in 2012 to invest $605 million in Barnes &
Noble's Nook digital device and e-book business and its college
bookstore group. The investment included a $300 million equity
stake plus additional investments through 2017.
In return, Barnes & Noble committed to creating e-reading
apps for new computers, phone and tablets powered by Microsoft's
Windows software. Wall Street analysts and investors wondered
whether Microsoft would eventually make a larger commitment to
Barnes & Noble, but that never materialized.
In a statement Thursday, Microsoft said, "As the respective
business strategies of each company evolved, we mutually agreed
that it made sense to terminate the agreement."
Barnes and Noble said its separation into two companies--one
consisting of 658 consumer stores and BarnesandNoble.com, and the
other made up of college bookstores and the Nook digital
business--will happen at the end of August 2015, instead of the
earlier target of March.
"Sorting out Microsoft is an important step," said John Tinker,
an analyst with Maxim Group. He said buying out the software giant
gives Barnes & Noble "more options regarding the future of the
Nook business and the entire company."
Pearson PLC continues to own a 5% stake in Nook Media.
The disclosure of the Microsoft transaction came as Barnes &
Noble reported results for the November quarter, posting a profit
of $12.3 million, or 12 cents a share, down from $13.2 million, or
15 cents a share, a year ago. Revenue fell 2.7% to $1.69
billion.
Mr. Tinker said the company's revenue was "solid" but earnings
before interest, taxes, depreciation and amortization were "lighter
than expected." Barnes & Noble shares were down 13% in morning
trading.
The Nook segment's revenue fell 41% to $63.9 million, while
digital content sales fell 21% to $45.2 million.
Since the initial deal was struck with Microsoft, circumstances
for both companies have changed. Barnes & Noble slowed work on
its e-reading devices and tablets as its sales slumped and laid off
much of the workforce devoted to its Nook devices.
In June, it signed deal to sell color tablets made by Samsung
Electronics Co. co-branded with the book chain's Nook label. The
deal was seen fulfilling Barnes & Noble's previously stated
plan to reduce its heavy investment in the Nook, allowing the
retailer to focus more on its stores and college business.
Meanwhile, Microsoft, which has its own Windows tablets and
smartphones, shifted its consumer-device strategy following sales
hiccups.
Barnes & Noble has sought to inject excitement into its
stores to combat the tepid store traffic that has plagued much of
the retail industry because of online shopping. The retailer has
gotten more creative with how it organizes its titles, added new
displays and toys, and introduced big-ticket gifts like beer kits
and turntables.
Mr. Tinker said it was a positive sign that the retail store
group showed core comparable-store growth of 0.5%, a figure that
excludes the sale of Nook digital products.
"What that tells you is that the book business has stabilized
and that the repositioning of the stores with more focus on gifts
and educational toys and games is working," he said.
Still, revenue at the retailer's consumer bookstores fell 3.6%
to $888 million, primarily because of declining sales of Nook
products. Comparable-store sales were down 1.5%.
-Shira Ovide contributed to this article.
Write to Chelsey Dulaney at chelsey.dulaney@wsj.com
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