Barnes & Noble Inc. and Microsoft Corp. are teaming up to create a new Barnes & Noble subsidiary that will house the digital and college businesses of the bookseller and include a Nook – B&N’s e-readers and tablets – application for Windows 8.
The companies said Monday that they are exploring separating those businesses entirely. That could mean a stock offering, sale, or other deal could happen.
In a statement, Barnes & Noble said a new name had not been selected for the firm and referred to it simply as “Newco.”
The partnership will see Microsoft make a $300 million investment in the subsidiary for an approximately 17.6 percent stake. Barnes & Noble will own about 82.4 percent of the subsidiary, which has yet to be officially named.
Barnes & Noble said the joint venture would be valued at $1.7 billion based on the size of the Microsoft investment.
Shares of Barnes & Noble jumped $10.41, or 76 percent, to $24.09 in morning trading. The opening price of $26 was a three-year high. Microsoft’s stock rose 2 cents to $32.
The deal gives Barnes & Noble ammunition to fend off shareholders who have agitated for a sale of the Nook e-book business or the whole company, but the companies said Monday that they are exploring separating the subsidiary, provisionally dubbed “Newco,” entirely from Barnes & Noble. That could mean a stock offering, sale or other deal.
The deal puts to rest concerns that Barnes & Noble doesn’t have the capital to compete in the e-book business with market leader Amazon.com Inc. and its Kindle, said analyst David Strasser at Janney Capital.
For Microsoft, the investment means that it will own 17.6 percent in a company that sells tablet computers based on Google Inc.’s Android, one of the main competitors of Windows Phone 7, Microsoft’s smartphone software.
Microsoft also said the deal means that there will be a Nook application for Windows 8 tablets, set to be released this fall. The app is likely to get a favored position on Windows 8 screens.
There’s already a Nook application for Windows PCs, but none for Windows phones.
The possibility of a separation of the businesses has been brewing recently. In March private investment firm G Asset Management, a Barnes & Noble shareholder, offered $460 million for a 51 percent stake in the company’s college bookstore unit, Banes & Noble College Booksellers LLC.
In 2009, Barnes & Noble Inc. bought the college bookstore unit from Chairman Leonard Riggio in a deal worth $596 million. The deal ended up costing Barnes & Noble $460 million after accounting for the unit’s cash on hand at the closing date.
Aside from the college business, Barnes & Noble is looking to maximize the potential of its Nook e-book readers. The bookseller has tried to adjust to a noticeable shift in book reading habits, with e-book readers becoming increasingly popular with consumers over traditional hardcover or paperback books. But Barnes & Noble is dealing with tough competition on that end from the likes of Amazon.com Inc.’s Kindle and others.
“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,” Barnes & Noble CEO William Lynch said in a statement.
“Microsoft’s investment in Newco, and our exciting collaboration to bring world-class digital reading technologies and content to the Windows platform and its hundreds of millions of users, will allow us to significantly expand the business,” he added.
The companies say the subsidiary will help to speed the transition to e-reading. Barnes & Noble sells the Nook e-book readers, which face stiff competition from a plethora of competitors, including Amazon.com Inc.’s Kindle.
The Nook app will make Barnes & Noble’s catalog of e-books, magazines and newspapers available to Windows customers in the U.S. and abroad. The subsiary will also include Barnes & Noble’s Nook Study software.
Barnes & Noble, based in New York, runs 691 bookstores in 50 states, including several across the Triangle.
Microsoft’s stock shed 12 cents to $31.86 in premarket trading.
“The shift to digital is putting the world’s libraries and newsstands in the palm of every person’s hand, and is the beginning of a journey that will impact how people read, interact with, and enjoy new forms of content,” said Andy Lees, President at Microsoft. “Our complementary assets will accelerate e-reading innovation across a broad range of Windows devices, enabling people to not just read stories, but to be part of them. We’re on the cusp of a revolution in reading.”
The companies also said they had settled a patent dispute and that Barnes & Noble and “Newco” would pay royalties to license Microsoft technology.