Billionaires’ (Book) Club

There’s a new business battle brewing. This time, over a book store. Indeed, what is for all intents and purposes, the last real book store—Barnes & Noble. Gone (for most parts of the country) are the days of browsing the shelves of the little book store downtown. As with most parts of the retail industry, big box stores took over years ago, and with the bankruptcy of Borders Group, Inc., Barnes & Noble is ostensibly the last remaining place in America to visit to buy a book. An actual book printed on actual paper, that is. Of course, Barnes & Noble has successfully carved out a share of the eBook market with their nook brand of eReaders—a new, touch screen model was even announced today—and that has attracted the attention of billionaire business owners looking to acquire Barnes & Noble. It’s the kind of battle we don’t get to see very often these days; it’s a little return to the 1980s in a lot of ways.

'80s Mega Band Mötley Crüe

Do you remember the ’80s? No, not the big hair, stonewashed jeans, and Swatch watches, rather the “merger madness” that ruled the business world. The 1980s saw big business takeovers like no other decade. It was the ’80s that gave birth to the corporate raider, the leveraged buyout (LBO), and the unprecedented growth and consolidation of America’s biggest businesses. In fact, many of this country’s biggest companies became the huge companies they are today during the 1980s. At a time when a large section of the country was making the exciting switch from their Atari 2600s to the new, 8-bit Nintendo Entertainment System, a smaller, more select group of Americans were buying up companies and consolidating their wealth.

The ’80s were the heyday of corporate raiders and LBO firms. We saw DuPont acquire Conoco for $8 billion. We witnessed the $6.6 billion dollar purchase of Marathon Oil by U.S. Steel, and then we saw Texaco buy Getty Oil for over $10 billion. And then there was the battle over Gulf Oil, which eventually ended with Chevron acquiring them for a mere $13 billion. By the mid-eighties, the now infamous Kohlberg, Kravis, Roberts, and Company (KKR) was becoming a well-known powerhouse in the world of corporate finance. In 1986, KKR completed their $6.2 billion acquisition of Beatrice Foods. Two years later, Philip Morris successfully acquired Kraft for $13.1 billion. This, perhaps, set the stage for the largest leveraged buyout the world had ever seen: The now famous LBO of RJR Nabisco by KKR for an unheard-of $25.1 billion.

Then, like an inevitable Sunday morning hangover, the 1990s arrived. Recession and recovery became that decades theme, perhaps a predictable end to one of the most unfettered financial eras in history. As far as mergers and acquisitions go, the past two decades have been quiet, in comparison. Though we have had plenty of entertainment in regards to corporate scandals. Enron. WorldCom. And of course the complete Wall Street meltdown of 2008. However, emptied retirement accounts and handcuffed executives aside, big business still thrives and mergers and acquisitions happen all the time. What we don’t get everyday is billionaires going head-to-head over control of a company.

A battle over Barnes & Noble has been going on for years now. While Barnes & Noble technically started decades ago in Wheaton, Illinois, what we know as a Barnes & Noble today began in 1971, when Leonard Riggio, a Bronx native, bought a New York City book store called Barnes & Noble. Over the years, he bought more book stores and expanded Barnes & Noble into the big box retail chain it is today.

However, there are some who feel that, in recent dealings, Leonard Riggio (the company’s largest shareholder) has not acted with the other shareholders’ best interests in mind. Case in point, the acquisition of Barnes & Noble College Booksellers. The criticism comes from the fact that Riggio and his wife borrowed money from Barnes & Noble to purchase hundreds of college book stores and then Riggio sold the bookstores to Barnes & Noble at a personal profit of millions of dollars. All of that is perfectly legal, but many shareholders argued that the college book stores were not useful to Barnes & Noble and in fact, saddled them with hundreds of millions of dollars in debt.

Ron Burkle

Chief among these critics is billionaire investor Ronald Burkle. Burkle heads Yucaipa Companies, a California-based private equity firm. In 2008, Burkle started purchasing large amounts of Barnes & Noble stock, and in 2010, he launced a proxy battle in an attempt to win a seat on the board of directors for himself and two outside directors he’d chosen. Burkle felt that Riggio had stacked the board too heavily with his own hand-picked friends. The battle got a little ugly, and it was a close fight, but in the end, Len Riggio narrowly defeated Burkle. Only 44% of shareholders voted in favor of Riggio (and about 30% of those votes came from Riggio himself), but it was enough to fend off the takeover. However, in the middle of this battle, Riggio announced that the board had decided to put the company up for sale.

Late last week, billionaire businessman John Malone, who heads media giant Liberty Media Corporation, announced he was interested in buying Barnes & Noble for $17 a share, or about $1 billion. This immediately sent Barnes & Noble shares higher, to levels they haven’t seen in about a year. Malone’s deal comes with the stipulation that Leonard Riggio remain on board. Why would a media guy want to buy a book store? Most likely because of Barnes & Noble’s share of the eBook market. B&N came a little late to the eReader party, but their nook eReaders have been a huge success and have placed Barnes & Noble in second place of eBook sales, right behind Amazon.com, who introduced their first Kindle eReader in late 2007.

Then, today we learned that Ron Burkle was not yet done with Barnes & Noble. According to filings with the Securities and Exchange Commission, Burkle has bought another 603,000 shares of the company at $18.489, well above the Liberty Media offer of $17. And Burkle’s average purchase price is still under the Liberty offer of $17 per share.Today’s purchase brings Burkle’s total ownership to 19.74%, which is just under the 20% “poison-pill” trigger recently adopted by the company during Riggio’s last battle with Burkle.

Barnes & Noble is not the only major book store in acquisition territory. Borders and Borders U.K. have had their fair share of offers, as has U.K.bookseller Waterstone’s. It will likely be a good while before we see any deal involving Barnes & Noble, but the real question is: What kind of deal will we see? Most likely, any deal will involve store closings, layoffs, and a downsizing of the company’s brick and mortar retail presents. What is the interest though from any potential buyer? Are they even looking at the sales of real books? Or could this be the first step toward a world dominated by eBooks? I think I’ll go listen to Green Day on vinyl while I think about it…