At first glance, Liberty Media and Barnes Noble make quite the odd couple.
Liberty is a new-age media conglomerate with a mogul chairman, John C. Malone. Barnes Noble is still largely a brick-and-mortar retailer, selling paper books to a generation of online readers.
Yet, in a move that caught the media and retail industries by surprise, Liberty on Thursday offered to acquire Barnes Noble in a proposal that valued the book chain, the nation’s largest, at $1.02 billion. Liberty Media proposed paying $17 a share for Barnes Noble and taking a 70 percent stake in the company if Leonard Riggio would keep his equity stake and continue as chairman.
“It was not on the radar screen,” said Peter Wahlstrom, a senior analyst with Morningstar.
The prospect of a deal delighted both analysts and investors on Friday. Shares of Barnes Noble jumped more than 30 percent, to $18.46 by midday.
“We view the offer from Liberty Media as a brilliant and well-timed move by Liberty,” said a Credit Suisse report.
So what does a bookseller offer Liberty – a company long focused on cable television, satellite companies and online retailers?
It’s the Nook, Barnes Noble’s e-book reader.
“Barnes continues to execute a successful digital book strategy and could be on the verge” of better earnings, the Credit Suisse report said.
Despite turmoil, Barnes Noble has used the Nook to increase its share of the e-book market. According to William Lynch, Barnes Noble’s chief executive, the company holds a 25 percent share of the market, behind Amazon’s Kindle, the industry leader.
“Malone sees the opportunity to invest aggressively to get more market share,” said David Strasser, a Janney Capital Markets analyst.
Although Liberty’s current investments include QVC, the television home-shopping giant, Bodybuilding.com and the Atlanta Braves baseball team, its bid for a bookseller is not as unorthodox as it might seem.
The company is fond of finding undervalued assets with improving cash flow, analysts said.
“You can look at the strategic reasons, but Liberty Media pursues financially driven deals,” said Murray Arenson, an analyst wit BGB Securities.
An acquisition of Barnes Noble may mirror Liberty’s earlier investment in Sirius XM Radio.
In 2009, the satellite radio company was on the precipice of bankruptcy, burdened by debt. Liberty made a $530 million investment, in exchange for preferred shares. Early last year, Sirius recorded its first quarterly profit since the 2008 merger of Sirius Satellite Radio and XM Radio.
Mr. Strasser also noted that Barnes Noble would likely profit for the next few years from the bankruptcy of its rival, Borders, which filed for Chapter 11 in February.
Some media analysts even wonder whether Liberty’s cash offer of $17 a share would satisfy Barnes Noble.
“There’s no way they’re taking a $17 offer– there’s no way this deal will get done below the $20s,” Mr. Strasser said. “The value here is enormous.”
Barnes and Noble has been on the block for nearly a year, and while it has reportedly received nibbles from roughly 20 companies, no deal ever emerged. It engaged Lazard and the law firm of Morris, Nichols, Arsht Tunnell as its advisers.
In December, William A. Ackman, activist hedge fund investor, moved to finance a $960 million merger of Barnes Noble and Borders.
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