How Much Barnes & Noble Could Fetch in a Buyout

Everyone loves a good old-fashioned buyout rumor that can pump up a down-and-out stock. The retail climate has been permanently changed by the internet, and companies like Barnes & Noble Inc. (NYSE: BKS) have been gutted along the way. Now Barnes & Noble, after seeing its shares peak at $30 or so back in 2006, has joined the rumor mill of buyout candidates.

Elliott Management is said to be the rumored auction winner, but terms and the timing of any such deal remain elusive. There was also the typical rumor notation that negotiations could also break down.

Before investors start expecting a mega-premium to make up for years of losses (the shares were under $5.00 before the rumors were published on Dow Jones News), there are some things to consider here. First and foremost, a pre-rumor value of about $320 million is against 2018 sales of $3.66 billion — but that was up at $4.3 billion in 2015 after revenues peaked in 2011 and 2012.

It also may be nearly impossible to expect that Wall Street analysts will have any great insight into what Barnes & Noble may ultimately be worth. The stock is thinly covered, even if Gabelli and Craig Hallum issued Buy ratings in late 2018. One had a $6 target and the other a $7 target, but with those targets not having been refreshed in months and with B&N having been a $7.70 stock in January it’s hard to rely on much outside observation here.

In the year ended April of 2018, B&N’s $3.66 billion in revenues generated $23.77 million in operating income and a net loss from continuing operations of $125.5 million. Since that time, the company was only profitable on the key Christmas and holiday quarter ending in January.

Barnes & Noble still had a high dividend, too high for any rational analysis, and its balance sheet has continued to contract on a net tangible asset basis after backing out goodwill and intangibles. After backing out the $1.31 billion in total liabilities and the $303.7 million in intangible assets and $71.6 million in goodwill, Barnes & Noble had net tangible assets of barely $98 million as of the end of January 2019.

It would likely be a relief to some traditional shoppers to have a strong company like Elliott Management be in charge of Barnes & Noble. Then again, even the mighty Paul Singer of Elliott Management and his team of strong managers are going to face the persistent growth of online shopping and the mega-pressure from the likes of Amazon, eBay and other online destinations where the public buys books.

In many ways, Barnes & Noble faces the same long-term existential threat that GameStop faces. In 2018 we did the same sort of view on GameStop around word that it was seeking a buyer and noted: Shareholders may want to consider that much higher share prices of yesteryear are probably not all that relevant in today’s world. Now GameStop is down and out with few prospects of a buyout and a business that keeps eroding due to industry changes and due to a shift in consumer behavior.

Shares of Barnes & Noble were last seen trading up 31% at $6.03 in late afternoon trading on Thursday. The 8.8 million shares which had traded hands by 3:10 Eastern Time was also nearly six times a normal trading day’s volume. Barnes & Noble had hit a 52-week low of $4.11 earlier on this same day, and the 52-week high is $7.81.

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