Barnes & Noble — Another Founder LBO?
February 25, 2013 by Douglas A. McIntyre
Riggio may join Michael Dell of Dell Inc. (NASDAQ: DELL), who has made an offer for his company, and Best Buy Co. Inc.’s (NYSE: BBY) Richard Schulze. Schulze has been working on his LBO plans for months. The three men have something in common beyond their financial plans. Each ruined his company — and was paid handsomely in the process.
The retail store chain of Barnes & Noble defies easy valuation. The corporation also owns a college store chain and an operation that holds assets including the Nook e-reader and e-book businesses. The Nook unit has done very poorly, having been crushed by an army of tablet computers, primarily the Apple Inc. (NASDAQ: AAPL) iPad and Amazon.com Inc. (NASDAQ: AMZN) Kindle. The value of the Nook could be close to zero.
Leaving aside the exact worth of the retail operations of Barnes & Noble, the performance of the corporation’s shares remains clear. Despite restructurings and takeover attempts, Barnes & Noble shares have done poorly and trade at about half of their 52-week high. This performance is not terribly different from the stock prices of Dell and Best Buy.
Riggio owns 29.8% of Barnes & Noble. In 2010, before he stepped down as chief executive officer, he made $700,000. He still makes $100,000 a year as chairman, and even received a bonus last year.
Riggio, Dell and Schulze can each leverage his current ownership position to make it easier to find financing for transactions. Of course, the average investor in each company has no such power. If the founders take these public corporations private at prices well below where they have traded in the past year, those average investors have no way to block the moves and prevent the transactions. Interests of founders block the interests of other shareholders, plain and simple.
Riggio may take the retail store operations of Barnes & Noble private because he can. That makes the transaction an insult to shareholders and undermines their ability to get fair returns on their investments.
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