Is L.A. billionaire Ron Burkle taking a run at Barnes & Noble Inc.?
Burkle has dramatically upped his stake in the nation’s leading brick-and-mortar book retailer, more than doubling his stock holdings in recent weeks – and triggering talk of a possible takeover battle.
Burkle’s rapid-fire stock accumulation took off when his investment firm, Yucaipa Cos., bought more than 4 million shares valued at $94 million from Nov. 10-16.
Within 24 hours, Barnes & Noble’s directors passed a “poison pill” stockholder rights plan designed to thwart an unwelcome takeover attempt.
Barnes & Noble declined to comment and Yucaipa did not respond to interview requests, but investment analysts said Burkle likely won’t veer from his “activist” investor streak.
“There is no question that Ron is an activist investor who doesn’t have the intention of sitting on the sidelines and clipping coupons,” said Lloyd Greif, chief executive of L.A.-based middle-market investment firm Greif & Co. “He likes to be in control and exert his authority when he sees an opportunity, and I think that has Barnes & Noble afraid of him.”
Last week, Yucaipa reported in a Securities and Exchange Commission filing that it has acquired 10.2 million shares in the New York-based bookseller, giving it a nearly 18 percent stake. It was the second time this month Yucaipa announced it had upped its stake, which totaled only 8 percent earlier this year. In its first filings this month, Yucaipa stated that it bought the shares because they “represented an attractive opportunity.”
But, the filing also said Yucaipa is “concerned with the adequacy and enforcement” of Barnes & Noble’s corporate governance, particularly the Sept. 30 acquisition of Barnes & Noble College Booksellers, a former stand-alone company owned by Barnes & Noble founder and Chairman Leonard Riggio. College textbooks are expected to go digital in the near future, leading some to question the wisdom of the acquisition.
However, Burkle and any institutional investor allies would have difficulty shaking up Barnes & Noble, considering Riggio’s 30.8 percent stake. Also, Riggio’s brother, Steve, is chief executive, noted Ben Silverman, director of research at InsiderScore.com.
Still, the bookseller isn’t taking any risks, with the board approving the stockholder rights plan last week. The plan gives shareholders the right to purchase a new series of preferred stock. It kicks in if a person or investment group, without board approval, acquires 20 percent or more of Barnes & Noble’s common stock, or announces a tender offer that results in the ownership of 20 percent or more of Barnes & Noble’s common stock. The plan will expire in three years.
“The board adopted the rights plan in response to the recent rapid accumulation of a significant portion of Barnes & Noble’s outstanding common stock,” the company said in a statement. “It is consistent with Barnes & Noble’s commitment to good corporate governance.”
The move is seen as a hostile gesture toward Burkle’s investment, said Greif, who has worked on deals with the billionaire and his firm.
“I just don’t think poison pills help the stockholders because they are designed to protect a company’s current leadership, and certainly the board has just thrown down the gauntlet for a fight with Ron – something he never walks away from,” Greif said.
Burkle – who made his fortune with investments in supermarket chains such as Food 4 Less, Pathmark and Dominick’s – isn’t a stranger to taking risks in tumultuous industries. He founded Yucaipa in 1986, and it has since completed more than $30 billion in mergers and acquisitions.
He’s cultivated a public image from successfully managing risky investments, including cutting deals with unhappy labor unions at his companies. He was in talks a few years ago to buy the financially ailing Tribune Co., owner of the Los Angeles Times.
But why Barnes & Noble, which sells books, music, DVDs and magazines on its Web site and from 774 retail bookstores in malls?
Shares of Barnes & Noble have fallen 11 percent over the past six months, which is less than the 20 percent decline for competitor Borders Group. But both booksellers are lagging Amazon.com, which has seen its stock surge 75 percent recently based on the performance of its Kindle e-book reader.
But some analysts have a relatively good outlook for Barnes & Noble, viewing the stock as undervalued compared with Amazon. Barnes & Noble is slated to get a boost in December when it starts shipping its own electronic book reader, the Nook, designed to compete with the Kindle.
“I think Burkle knows what he’s doing, given his track record,” Silverman said. “Barnes & Noble is the leading brick-and-mortar bookseller in the U.S., and with the Nook is poised to enter into the technology market. So maybe he sees the chance to influence the company to better think out how to capitalize on that.”
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