What To Make of Jana and B&N? (BKS, AMZN, LMCA)

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Barnes & Noble Inc. (NYSE: BKS) may not be as doomed as the e-book lovers think.  With competition from Amazon.com Inc. (NASDAQ: AMZN) and other digital platforms constantly two-steps ahead of it, the prevailing thought is that B&N and all of its subsidiary bookstores are headed for implosion.  So what about an activist hedge fund taking a big stake?

Jana Partners now has a stake of almost 7 million shares which generates close to a 12% stake in the top brick-and-mortar bookseller.  The fund also has options which entitle it to purchase another 250,000 at $13.00 per share.

When you include the massive stake held by the Riggio group, the convertible stake by Liberty Media Corporation (NASDAQ: LMCA), and the stake held by Ron Burkle, it is a wonder that there are any shares left in the float.  All B&N needs at this point is to get Carl Icahn and Bill Ackman involved to have the perfect five-knuckle shuffle in place.

The Nook e-book reader has been well received according to the company, but the Kindle and other devices just remain a total challenge.  It is obvious that the digital business is going to be crucial for Barnes & Noble and all book-sellers in the future, but it remains unclear about just how profitable it will be for the brick-and-mortar stores when you consider the legacy overhead that comes along with running a large chain of stores.

B&N is a story that is not likely going to go away any time soon, but it is almost certainly expected to remain very controversial.  The market cap here is only $726 million, and that is after a 10.1% gain to $12.49 today. The 52-week trading range is $9.35 to $18.73, but it is expected to lose money this year and next.  Thomson Reuters has a consensus target for its fiscal year-end of April 2012 as a loss of -$1.19 in earnings per share on sales of $7.22 billion.  Estimates for 2013 are -$0.95 EPS and $7.53 billion in sales.

Stay tuned!

JON C. OGG

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