- Michael CaliaThe Wall Street JournalCANCEL
Updated Feb. 26, 2015 12:06 p.m. ET
Barnes & Noble
said Thursday it plans to spin off its college bookstore business into a separate publicly traded company by the end of August, but the company’s plans to revitalize its troubled Nook digital business remained unclear.
Earlier, Barnes & Noble had planned to spin out the Nook business as well. But that unit, which consists of e-books, devices and accessories, suffered a 55% revenue decline in the holiday period, making it difficult for the company to pitch its value to investors, according to some analysts.
Under the new plan, the Nook business will stay with the core retail stores group, which also includes BarnesandNoble.com.
an analyst at Maxim Group, said the new structure makes sense. “What this does is create a pure play for investors interested in the college market,” said Mr. Tinker. “Keeping the Nook inside the retail group is logical because they don’t currently know where it stands. Nook losses are shrinking, but it is still uncertain what’s really happening there.”
Barnes & Noble has long argued it needs to have a digital offering for its customers. Retaining the Nook business will allow it to do that.
In recent trading on the New York Stock Exchange, Barnes & Noble shares rose 6.4% to $25.80.
The proposed tax-free spinoff comes at a time when Barnes & Noble’s 649 consumer stores appear to have stabilized. Over the last 12 months, the retailer has placed greater emphasis on in-store events that have driven traffic to its stores, culminating in a 1.7% gain in core comparable-bookstore sales for the nine-week holiday period ended Jan. 3.
One reason the retailer cited for the proposed spinoff is that it will allow its board and senior managers to focus even more on increasing store traffic while refining its digital strategy.
The college bookstore group includes 714 stores. Barnes & Noble said it generated total sales of $977.4 million for the 26-week period ended Nov. 1, 2014, up 1.4% from $963.5 million in the year-earlier period. Net earnings, however, fell by more than half to $10.7 million from $22.5 million because of new investment.
As a separate publicly traded-company, the college group will be aiming to build scale in a highly fragmented market. According to the company’s security filing, there are some 4,500 college and university-affiliated bookstores nationwide that had combined sales of $10.5 billion in 2012.
The college bookstore company will be looking to grow through acquisitions or mergers and will be on the hunt to raise capital and form strategic alliances, the filing said.
“Separating Barnes & Noble Education will create an industry-leading, pure-play public company with more flexibility to pursue strategic opportunities in the growing educational services markets,” said
Barnes & Noble’s CEO, in a statement.
Barnes & Noble values the college business at $775 million, according to the filing. In a report issued Thursday morning,
an analyst at Janney Capital Markets, valued it $580 million, or six times his estimate of earnings before interest, taxes, depreciation and amortization for the fiscal year ended April 2016.
The new college business will be led by current Chief Executive
and will be based in Basking Ridge, N.J.
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