Barnes & Noble Inc. (BKS) jumped the most in a year following a report that Microsoft Corp. (MSFT) (MSFT) is planning to offer $1 billion to buy the Nook Media unit.
The shares surged 24 percent to $22.08 at the close in New York for the largest one-day gain since April 30, 2012. It’s also the bookseller’s highest closing price since May 3, 2010. Microsoft fell 1 percent to $32.66.
The plan sees Microsoft gaining preferred units in Nook Media, which also includes a college book business, Techcrunch reported yesterday, citing internal documents. Nook Media also intends to discontinue its Android-based tablet business by the end of its 2014 fiscal year to begin using applications on unnamed “third-party” devices, Techcrunch said.
Mary Ellen Keating, a spokeswoman for New York-based Barnes & Noble, declined to comment on the report in an e-mail. A spokeswoman for Redmond, Washington-based Microsoft declined to comment.
In April 2012, Microsoft announced a $300 million investment in the newly formed Nook Media subsidiary, and the shares surged 52 percent. Microsoft’s 18 percent stake valued Nook Media at $1.7 billion. Publisher Pearson Plc (PSON) then announced an investment of $89.5 million in December in the unit, which gave Nook Media a valuation of $1.79 billion.
Barnes & Noble created Nook Media with an eye to separating it from the retail stores and website to boost its value. Investors have undervalued the company and dividing it up could alleviate that, Barnes & Noble has said.
On Feb. 25, Barnes & Noble Chairman Leonard Riggio said he would offer to buy the company’s 677 retail stores and website. Three days later, Barnes & Noble reported that Nook sales in the fourth quarter sank 26 percent. Excess Nook devices forced the company to discount the tablets and writedown other inventory it couldn’t sell. That led to a net loss in what is typically its most profitable period.
Nook Media had an operating loss of $190.9 million and sales of $2.18 billion in the three quarters through Jan. 26. The division has been losing money as it spends on marketing and developing devices to compete in the tablet market with Apple Inc. (APPL), Amazon.com Inc. and Google Inc.
Barnes & Noble announced a partnership with Google on May 3 that will put Google Play, its online application and content store, and other applications such as Gmail on Nook tablets. Google’s Nexus and Microsoft’s Surface compete with each other as well against Nook.
Microsoft didn’t have to sign off on the deal with Google, despite it owning 18 percent of Nook Media, Barnes & Noble Chief Executive Officer William Lynch said in an interview on May 3. He said he didn’t know what Microsoft thought about Barnes & Noble partnering with one of the software maker’s largest rivals. The bookseller is also using Google’s brand in its marketing for Nook, including signs in its stores.
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