Barnes & Noble Inc. (BKS:US), the biggest U.S. bookstore chain, won a judge’s dismissal of four company directors alleged to have unfairly sided with founder Leonard Riggio in the company’s $596 million buyout of his college- textbook firm.
Two other people named in a lawsuit, former directors Lawrence S. Zilavy and Michael J. Del Giudice, must stand trial along with the chairman and founder, Delaware Chancery Court Judge Leo Strine ruled today at a hearing in Wilmington.
Saying there was no evidence they acted in bad faith, Strine dismissed independent directors Irene Miller, Margaret Monaco and William Dillard II; along with Leonard’s brother, Vice Chairman Stephen Riggio, who recused himself from the vote.
The Louisiana Municipal Police Employees Retirement System, a holder of company common stock, sued the board Aug. 17, 2009, contending officials violated their duties and wasted corporate assets in the sale. The suit seeking damages was filed on behalf of the company. A trial is tentatively set to begin June 18.
The independent directors “had a strong interest in making sure Barnes & Noble didn’t overpay” for the college book firm, and “you can’t be personally liable merely for casting a vote,” defendants’ lawyer Kenneth Nachbar told Strine.
Directors were beholden to Leonard Riggio through long-term associations, recognized his plans for transition to digital readers and “knew Mr. Riggio was the godfather of all this technology,” countered plaintiff’s lawyer Pamela Tikellis.
The investors argued that the board allowed Riggio to dictate terms and timing of the 2009 buyout of Barnes & Noble College Booksellers Inc. and didn’t force him to seek other offers for the company to justify the purchase price.
Another Barnes & Noble shareholder, G Asset Management LLC (0117933D:US), offered this month to buy 51 percent of the college-bookstore unit in a deal that values the subsidiary at $460 million as the parent company considers options to boost its value.
Selling off the chain of 641 college bookstores would enhance Barnes & Noble, which is “substantially undervalued,” New York-based G Asset Management said in a March 16 letter to the company’s board.
While Barnes & Noble operates about 700 retail locations along with the college bookstores, its future growth lies in electronic books. The company started its digital business in 2009 by selling e-books and releasing the Nook e-reader. The company projects the Nook business will generate $1.5 billion in sales in the fiscal year ending April 30, accounting for about 20 percent of its total revenue.
The retailer sells the second most e-books in the U.S. after Amazon.com Inc. (AMZN:US) It was the target of a takeover bid by the billionaire John Malone’s Liberty Media Corp. last year. Liberty invested $204 million in the company after dropping its bid.
Barnes & Noble also fended off a bid by the billionaire investor Ron Burkle to invalidate its anti-takeover defenses and clear the way for a proxy fight over board seats in 2010. Strine concluded the so-called “poison-pill defense” didn’t unfairly hamper Burkle’s effort to have his designees elected as directors.
Investors filed their suits as so-called derivative actions, which would return any recovery from insurance covering directors to the bookseller’s coffers.
Mary Ellen Keating, a spokeswoman for Barnes & Noble, declined to comment on the ruling in an e-mail message.
The case is In Re Barnes & Noble Stockholder Derivative Litigation, CA No. 4813, Delaware Chancery Court (Wilmington).
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