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Microsoft To Invest $300 Mln In Barnes & Noble's Nook

Microsoft To Invest $300 Mln In Barnes & Noble's Nook
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4/30/2012 9:37 AM ET

Microsoft Corp. (MSFT: Quote) is making a $300 million investment in a newly formed unit of bookstore chain Barnes & Noble Inc. (BKS: Quote). The new unit will include the digital and college businesses of Barnes & Noble as well as a new Nook application for Windows 8. Following the news, shares of Barnes & Noble are gaining more than 84%.

The Redmond, Washington-based software giant said its investment, which values the newly-formed subsidiary at $1.7 billion, is in exchange for an approximately 17.6 percent equity stake in the new unit.

Barnes & Noble will own the remaining 82.4 percent stake in the new subsidiary, which will have an ongoing relationship with the company's retail stores. Barnes & Noble has not yet decided on an official name for the newly born unit, which it now calls Newco.

Barnes & Noble's CEO William Lynch said, "The formation of Newco and our relationship with Microsoft are important parts of our strategy to capitalize on the rapid growth of the NOOK business, and to solidify our position as a leader in the exploding market for digital content in the consumer and education segments."

Both companies also said they have settled their patent litigation. Moving forward, Barnes & Noble and Newco will have a royalty-bearing license under Microsoft's patents for its Nook eReader and tablet products.

The Nook application for the Windows 8 operating system is expected to extend the reach of Barnes & Noble's digital catalogues of e-Books, magazines and newspapers to millions of Windows customers in the U.S. and internationally.

Microsoft is looking for Windows 8 to improve its foothold in the smartphone and tablet markets. The company reportedly plans to finish work on the new Windows 8 operating system this summer and debut it in October, enabling it to better compete with Apple's (AAPL: Quote) new iPad. The new software focuses on optimization for touchscreen hardware, including tablet PCs.

Barnes & Noble has been seeing strong demand for its Nook ebook readers and continued growth in digital content sales, helping offset a decline in traditional physical book sales. The company entered the tablet market in early November 2011 by unveiling the Nook Tablet, aimed to rival industry leader Apple's iPad as well as Amazon's (AMZN: Quote) tablet Kindle Fire.

However, the Nook division's growth has weighed heavily on Barnes & Noble's profits. The company said Monday that it continues to explore all alternatives for a strategic separation of Newco, including a strategic separation or the creation of a stand-alone public company.

In early January, Barnes & Noble said it has decided to explore strategic alternatives for the Nook digital business, even as it reported a 70 percent increase in Nook unit sales during the holiday period. The company said it was evaluating its reporting segments due to the increased significance of the Nook business platform.

In Monday's regular session, BKS is trading at $25.18, up $11.50 or 84.06 percent on a volume of 4.62 million shares. MSFT is trading at $31.99, up $0.01 or 0.03 percent on a volume of 1.03 million shares.

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by RTT Staff Writer

For comments and feedback: editorial@rttnews.com

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