B&N and Microsoft Form Joint Venture
Barnes & Noble and Microsoft have formed a partnership in a new B&N subsidiary--temporarily called Newco--that consists of B&N's digital business and B&N College. Microsoft is making a $300 million investment in Newco for a 17.6% equity stake; B&N will own the other 82.4% of the company. The deal values the new company at $1.7 billion.
Wall Street is liking the news: in pre-market trading, B&N stock is up 77.6%, to $24.29 a share.
Newco "will have an ongoing relationship" with B&N's bricks-and-mortar stores and aims, as B&N and Microsoft put it, to "build upon the history of strong innovation in digital reading technologies from both companies. The partnership will accelerate the transition to e-reading, which is revolutionizing the way people consume, create, share and enjoy digital content."
B&N, which announced in January that it was considering "the strategic separation of its digital business in order to maximize shareholder value," said today that it "intends to explore all alternatives for how a strategic separation of Newco may occur. There can be no assurance that the review will result in a strategic separation or the creation of a stand-alone public company, and there is no set timetable for this review."
TechCrunch interpreted the news this way: "Barnes & Noble has found a new, major partner in its fight to get an edge over Amazon and Apple in the heating up market for e-books and the devices being used to consume them.... The news leaves the door open for B&N to eventually spin [the Nook and college operations] off into a separate business altogether--or sell them to Microsoft. And it leaves a big load of questions about what B&N will do next with the Nook, which is build on a forked version of Google's Android platform."
The first tangible result of the partnership is a Nook application for Windows 8, allowing "hundreds of millions" of Windows customers around the world access to B&N's online bookstore.
As part of the partnership, B&N and Microsoft have settled their patent litigation, and B&N and Newco will pay royalties to Microsoft for patents on Nook e-readers and tablets.
B&N CEO William Lynch called the moves "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." The new company and partnership will "significantly expand the business."
B&N and Microsoft said including B&N College is "an important component of Newco's strategic vision" in part because Nook Study software "will provide students and educators the preeminent technology platform for the distribution and management of digital education materials in the market."