Bloomberg News

Barnes & Noble Chief Said to Settle Suit for $29 Million

June 14, 2012

Barnes & Noble Inc. (BKS:US) founder Leonard Riggio agreed to pay $29 million to settle investors’ claims that he wrongfully pushed the biggest U.S. bookstore chain to acquire his college-textbook firm, lawyers said.

Riggio, Barnes & Noble’s chairman, agreed to settle shareholders’ Delaware Chancery Court lawsuits alleging the $596 million buyout of the textbook seller in 2009 was designed to unfairly reward him and amounted to a waste of company assets, attorneys representing company shareholders said in an e-mailed release.

The settlement, which will be paid personally by Riggio and won’t be covered by insurance covering Barnes & Noble officers and directors the people say, comes less than a week before a judge was slated to hear investors’ claims at a June 18 trial in Wilmington, Delaware.

Microsoft Corp. (MSFT:US) agreed April 30 to invest $300 million in a new Barnes & Noble unit set up to combine its Nook digital reader with the college-textbook business. Microsoft will own about 18 percent of the unit, company officials said.

Settlement papers also include a request from plaintiff’s lawyers for legal fees and expenses of one-third of the settlement amount, or about $10 million. The request must be reviewed by a judge at a later hearing.

While Barnes & Noble operates about 700 retail locations, its future growth lies in electronic books. The company started its digital business in 2009 with the Nook and projected the e- reader business may generate as much as $1.5 billion in annual sales.

Reduced Proceeds

Mary Ellen Keating, a spokeswoman for New York-based Barnes & Noble, said in an e-mailed statement yesterday that the company doesn’t comment on litigation.

Riggio will pay the settlement out of the proceeds he is slated to receive from the company’s purchase of the textbook unit, which closed in 2009, investors’ lawyers said in the release.

The company’s founder agreed to reduce the amount he was to receive under a $150 million promissory note by $22.75 million and cut $6.3 million in interest payments due on the note, which matures in 2014, the people said.

Pension funds from Louisiana and Pennsylvania sued Riggio and other directors after the acquisition of Barnes & Noble College Booksellers Inc. was announced. Shareholders’ lawyers argued the board allowed Riggio to dictate terms and timing of the buyout and didn’t force him to seek other offers for the company to justify the purchase price.

Chairman’s Brother

In March, Delaware Chancery Court Judge Leo Strine Jr. threw out investors’ claims against Barnes & Noble’s three independent directors and Vice Chairman Stephen Riggio, the chairman’s brother. Stephen Riggio didn’t vote on the textbook firm’s acquisition.

Still, Strine allowed the case to go forward against Riggio. The settlement covers both the company founder and his wife, Louise, who both controlled the textbook unit, the people said.

“We believe the transaction as originally structured was unfair to the company, and are happy the company will receive this compensation,” Michael Barry, a Wilmington, Delaware-based lawyer for Barnes & Noble shareholders, said in an e-mailed statement.

Since the funds filed their suits as so-called derivative actions, the $29 million settlement will be returned to the company’s coffers rather than to shareholders.

Takeover Target

New York-based Barnes & Noble sells the second-most number of e-books in the U.S. after Amazon.com Inc. (AMZN:US) It was the target of a takeover bid by 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 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 chain’s so-called poison-pill defense didn’t unfairly hamper Burkle’s effort to have his designees elected as directors.

The case is In re Barnes & Noble Stockholder Derivative Litigation, 4813, Delaware Chancery Court (Wilmington).

To contact the reporters on this story: Jef Feeley in Wilmington, Delaware, at jfeeley@bloomberg.net; Phil Milford in Wilmington, Delaware, at pmilford@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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Companies Mentioned

  • BKS
    (Barnes & Noble Inc)
    • $20.63 USD
    • 0.27
    • 1.31%
  • MSFT
    (Microsoft Corp)
    • $46.13 USD
    • 1.11
    • 2.41%
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