PREVIEW-Barnes & Noble proxy war, earnings complicate sale

* WHAT: Barnes & Noble 1st quarter earnings

* WHEN: Aug. 24

* Co sees Q1 $0.85-$1.15 loss/shr vs year ago EPS $0.14

* Results to affect outcome of Riggio vs Burkle

By Phil Wahba

NEW YORK, Aug 20 (BestGrowthStock) – The war that has erupted
between Barnes & Noble Inc’s (BKS.N: ) two largest shareholders
over control of the bookseller is putting a wrench in its plans
to sell itself and could make the retailer less appealing.

The company is expected to report a quarterly loss on
Tuesday, and the extent of the damage is likely to affect who
shareholders vote for at next month’s annual meeting.

The conflict pits company founder and Chairman Leonard
Riggio against billionaire Ron Burkle, who is waging a proxy
battle to place three of his directors on the board. Burkle has
accused Riggio of managing Barnes & Noble for his own benefit.

Few bidders for what is already regarded as a tough sell
are likely to step up until the dust settles.

“Nothing is going to happen for a while. It is a long road
we’re on,” a source familiar with the sales process told
Reuters. The source suggested that the process may also lean
more toward a financial restructuring, though all options are
being explored.

Last week, Burkle fired his opening salvo after losing a
court challenge to terminate the company’s poison pill. He
nominated three directors, including himself, for the board.

Riggio, who built up the bookseller into the No. 1 national
U.S. chain, is up for reelection and is backing two outside
directors to add clout to the board. He is also seeking
investors to join him in a bid for the company.

Barnes & Noble put itself up for sale earlier this month
after suffering for years as retail giants like Wal-Mart Stores
Inc (WMT.N: ) siphoned off physical book sales. It is also
fending off growing competition from electronic books sold by
Amazon.com (AMZN.O: ) and more recently Apple Inc (Read more about Apple stock future.) (AAPL.O: ).

Burkle has said Barnes & Noble’s board is packed with
Riggio cronies and his Yucaipa Companies firm said in a
regulatory filing on Thursday that changing the board would go
a long way to making the bookseller attractive to buyers.

Burkle also questioned whether Riggio was sincere at all in
launching the sales process, saying it might be a ploy to allow
him to acquire the company while the stock price is low. Barnes
& Noble’s shares are down about 40 percent in the past year.

Others have said the sale process could just be a trial
balloon to see what price Barnes & Noble could fetch.

“A sale isn’t the only option,” the source familiar with
the sale process said. “It’s a full process. Restructuring and
any number of options are on the table.”

Burkle, who built his fortune through buyouts of West Coast
supermarket chains, has sought investments in troubled but
prominent companies, such as movie studio Miramax and the New
York Times Co (NYT.N: ). In June, he took a 6 percent stake in
clothing maker and retailer American Apparel Inc (APP.A: ).

TELLING NUMBERS

Barnes & Noble warned investors in June it expected to lose
85 cents to $1.15 per share in the first quarter and Chief
Executive William Lynch said expenses to develop its digital
business and Nook e-reader would hit its results.

“The vast majority of the loss will be from the Nook
expenses,” said Morningstar analyst Peter Wahlstrom.

Wahlstrom said investors would be looking for signs that
Barnes & Noble’s e-books strategy is gaining traction. That
would be hard to assess since the retailer, like Amazon, does
not break out exact Nook or e-books sales figures.

“The market is getting full of devices — they either have
to commit to the development costs or partner with somebody,”
said Forrester analyst James McQuivey.

By McQuivey’s estimates, Amazon has sold about 5 million
Kindles so far, while Barnes & Noble has sold 1 million Nooks
since the device’s launch last autumn. Each device generates
sales of two e-books per month on average, he said.

But the extent of the first-quarter loss could determine
whether Burkle prevails or whether Riggio does.

“The worse that the performance is, the better it is for
Burkle. The more performance deteriorates, the more you’re
probably willing to make some changes,” said University of
Chicago finance professor Steven Kaplan.

On the other hand, if the results show progress,
shareholders could prefer to stick with Riggio’s approach.

Burkle, who has amassed a 19.2 percent stake, is likely to
get some help from Barnes & Noble’s third largest investor,
money manager Aletheia Research and Management Inc.

In a court document filed last week in which he upheld the
anti-takeover poison pill, Delaware Chancery Court Vice
Chancellor Leo Strine said Aletheia founder Peter Eichler would
likely vote in tandem with Burkle.

“At his deposition, Eichler gushed over Burkle, and made
clear that for him, the chance to talk investments with Burkle
was equivalent to an aspiring songwriter getting to trade licks
and lyrics with Dylan,” the judge wrote.

Eichler, whose firm owns 15.4 percent of Barnes & Noble
shares, did not respond to an e-mail request for comment.

If Yucaipa and Aletheia vote together, their combined 34.6
percent stake in Barnes & Noble could counter Riggio. If he
loses, Burkle could go hostile, though Yucaipa said in a filing
on Thursday that it had never taken that route.

“You might see a takeover bid and if it’s a high enough
offer, you might see Riggio sell,” Kaplan said.
(Reporting by Phil Wahba; additional reporting by Jessica Hall
in Philadelphia; Editing by Michele Gershberg and Richard
Chang)

PREVIEW-Barnes & Noble proxy war, earnings complicate sale