Barnes & Noble buying Bertelsmann's dot-com stake
By Ellis Mnyandu
NEW YORK, July 29 (Reuters) - Barnes & Noble Inc. <BKS.N>, the top U.S. books retailer, said on Tuesday it has agreed to pay $164 million to buy a stake that German media firm Bertelsmann AG 1/8BERT.UL 3/8 has decided to sell in a jointly owned online unit.
Barnes & Noble, whose foray into the Internet has faced increasing competition from top online bookseller Amazon.com Inc. <AMZN.O>, said it expects the transaction to cut its profit estimates for the rest of 2003 by 11 cents a share.
The transaction, which is expected to close in 45 days, calls for Barnes & Noble to pay $2.80 for each Bertelsmann share in barnesandnoble.com Inc. This is a 37 percent premium over the barnesandnoble.com <BNBN.O> closing price of $2.04 on Tuesday on Nasdaq.
According to Bertelsmann's 2002 annual report, the German media conglomerate owned a 36.8 percent stake in the online arm of New York-based Barnes & Noble.
Barnes & Noble, with more than 870 stores, launched barnesandnoble.com in May 1997 after operating a Web site on the America Online Web service for a few months.
Late in 1998, during the height of the Internet bubble, Bertelsmann paid $200 million to partner with barnesandnoble.com and continued to jointly invest in the online venture.
But even with big names behind it, stiff competition pressured barnesandnoble.com as Amazon increased its lead on Internet book selling.
Even so, Barnes & Noble said in a statement that barnesandnoble.com remains on track to produce positive cash flow in the fourth quarter, as well as for 2004. Last week barnesandnoble.com reported a narrower second-quarter loss as it cut operating expenses.
But according Prudential Financial analyst Mark Rowen barnesandnoble.com "lost both sequential and year-over-year market share in North American media products (such as book, music, movies)" to Amazon.com during the quarter.
"It appears to us that barnesandnoble.com's focus on reaching profitability may have caused it to lose momentum to its archrival," Rowen said in a research note analyzing the online unit's results.
Bertelsmann's holding in barnesandnoble.com was under its DirectGroup unit, which integrates the company's global media direct-to-customer businesses.
In line with a business strategy outlined by Bertelsmann in September 2002, the DirectGroup is exiting all its media e-commerce businesses to focus on the global book and music club businesses. Barnes & Noble shares closed on the New York Stock Exchange off 18 cents at $25.32, ahead of the Bertelsmann announcement.
07/30/03 00:06 ET
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