This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

Barnes & Noble Investor Wants a Nook Spinoff for Christmas

NEW YORK ( TheStreet) - Barnes & Noble (BKS - Get Report) should spin off its Nook Media unit of e-readers and e-books, fulfilling a strategy the company said it was exploring at the start of 2012, according to a letter sent by an investor to company management on Friday.

Rick Schottenfeld, head of investment firm the Schottenfeld Group, said in a letter sent to Barnes & Noble that the company should follow through on a proposal to spin its fast growing Nook business into a separate publicly traded company.

The move, Schottenfeld said, would help to the bookseller's strategy and unlock significant shareholder value. A prospective spinoff would also follow through on a plan the company said it was considering in early 2012.

In the Friday letter sent to Barnes & Noble chairman Leonard Riggio, Schottenfeld argued that significant stockholder value is trapped within the company's conglomerate structure, which includes a declining but cash flow positive physical bookstore business and, Nook, its fast-growing but money losing digital books and tablet unit.

Schottenfeld argued Barnes & Noble's mature and cash generating retail unit isn't a good fit with its high growth Nook business in public markets. A spinoff, he said, would give investors reason to pay higher multiples for Barnes & Noble's combined assets. Meanwhile, the investor also argued investing Barnes & Noble's legacy bookstore cash flow into Nook has been a poor use of the company's liquidity.

"Unfortunately, what we are left with today is a dysfunctional business with two divisions that are seemingly at odds with each other," wrote Schottenfeld, in the letter that recommended Barnes & Noble's maximize the free cash flow of its physical book business and return that cash to investors by way of dividends and share repurchases.

Schottenfeld characterized Nook as a growth business with risk and reward characteristics for a different type of investor. "These two companies are attractive to two distinct groups of investors," he wrote, of logic of a spinoff.

There's already indication Barnes & Noble agrees with the assessment, even if it's unwilling to fully commit to a Nook spinoff. In early January, Barnes & Noble said in fiscal 2011 third quarter earnings it was considering a split of Nook from its physical bookstores business.

In May, the company announced it was embarking on a joint venture with Microsoft (MSFT - Get Report) on Nook where the tech giant would invest $300 million in the e-reader business and feature a Nook app as part of its recently launched Windows 8 platform.

The JV was finalized in October; however, Nook has yet to be spun off into a separate publicly traded company. At the IMN Activist Investor Conference in May, hedge fund Jana Partners said it took an 11% stake in Barnes & Noble on the heels of its consideration to spin Nook into a separate publicly traded company.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
AMZN $380.16 0.00%
BKS $24.90 0.00%
MSFT $43.85 0.00%
TGT $76.83 0.00%
WMT $83.93 0.00%

Markets

DOW 18,132.70 -81.72 -0.45%
S&P 500 2,104.50 -6.24 -0.30%
NASDAQ 4,963.5270 -24.3630 -0.49%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs