Barnes & Noble surges above 20%; board to explore sale

Barnes & Noble (BKS) announced today that the board is exploring options after it has got inquiries from various firms to acquire the retailer. The potential parties who have evinced interest also include the current Chairman Leonard Riggio. The bookseller also added that a Special Committee would explore all possible options as part of the review process.

Investors seem to be enthralled with the announcement with the stock rallying more than 20% in the extended hours of trading after the book retailer unveiled the review process. The company also declared a quarterly dividend of $0.15 per share.

In order to thwart any takeovers during the strategic review, the company has announced a rights plan which is expected to expire in October next year. This announcement is due to the fact that the book retailer has found few parties are gobbling up the company’s shares in huge quantities which it’s not able to identify.

As part of the plan, if anybody buys 20% or more of the company’s common shares without the board’s nod, the rights issue will come into effect where the rights holders can buy Barnes & Noble preferred shares on par with common stock at 50% discount.

It’s worth noting Chairman Riggio now has a 19.2% stake in the company. Investor Richard Schottenfeld increased his stake in the bookseller to 6.9% last month. Schottenfeld discussed with Riggio on various options available for the company which includes a possible sale. Just a month after Schottenfeld increased his stake, the board has initiated the formal review process.

Barnes & Noble’s traditional brick-and-mortar bookselling business has been struggling to stay afloat over the years due to the changing consumer shopping habits where people started buying books online from Amazon (AMZN) which has resulted in continuous market share loss for the New York-based retailer. Even though the company tried various measures to turn things around with its online offerings, it could not withstand the competition from juggernaut Amazon.

Related: Barnes & Noble misses the mark for Q1 2019 

In addition, constant change in the leadership made things worse for Barnes & Noble. The company had seen five CEOs during the last five years. In July, Demos Parneros saw an unceremonious exit citing non-compliance with the company’s policies. Parneros sued the company in August for defamation and breach of contract.

In the recently reported quarter, Barnes & Noble missed estimates on revenues and earnings. The retailer reported sales of $795 million, down 6.9% over last year and comparable store sales fell 6.1%. Net loss widened to $17 million or $0.23 per share from $10.8 million or $0.15 per share in the prior-year period. Shares of Barnes & Noble plunged 30% over the last 12 months and about 19% in 2018.