Dive Brief:
- Activist hedge fund Sandell Asset Management announced Tuesday it had taken a “meaningful” stake in Barnes & Noble and urged the big-box book retailer in a letter to sell itself or go private. A Barnes & Noble spokesperson declined to comment to Retail Dive on the letter.
- The hedge fund’s CEO, Thomas Sandell, described the current market value of Barnes & Noble as “unconscionably low” given the company’s position as the last remaining “truly national bookstore chain.” He wrote further, “It is our opinion that the public market for retail stocks is contributing to a risky and inhospitable environment under which the stock price of Barnes & Noble may not fairly reflect its intrinsic value anytime in the foreseeable future if it remains a stand-alone company.”
- To combat a hostile stock trading environment for retailers, the activist suggested Barnes & Noble sell itself, perhaps to a media or internet company looking for a physical presence, or to a private equity buyer. Alternately, Sandell said Barnes & Noble could take itself private in a leveraged transaction, as, Sandell noted, the company’s chairman and founder Leonard Riggio contemplated doing in a few years ago.
Dive Insight:
Flattery can't be the worst strategy deployed by an activist investor trying to convince a company to give up ultimate control over its fate and its operations. Sandell, in his letter, made clear he thought that physical books, physical book retailers and Barnes & Noble specifically still had a place in a world increasingly ruled by a certain nonphysical book retailer.
But Sandell didn't miss the opportunity to point out Barnes & Noble's well-documented missteps, including its struggling Nook business and parade of CEOs that have shuffled in and out of the executive office over the last few years.
In trying to convince the book retailer to buy into the plan to sell itself, Sandell offered Barnes & Noble two recent examples he thought were relevant: Amazon’s acquisition of Whole Foods and Sycamore’s acquisition of Staples.
Amazon could get in Whole Foods a physical retailer with prime or “beachfront” locations around the country, as Sandell wrote, pointing out that Barnes & Noble occupies similarly coveted property in the U.S. At the same time, Sandell said in his letter, “from a purely financial point of view, the robust cash flow and low leverage of [Barnes & Noble] makes the company highly-attractive to a financial buyer such as a private equity firm,” as Staples apparently was to Sycamore.
In either case, or alternately in a go-private transaction led by the company’s chairman, Sandell and other investors would get a payout while Barnes & Noble could shield itself from the whims of a stock market bearish on physical retailers. It’s a market ripe for activists, Sandell among them, who can snatch up stakes on the cheap and press retailers for various forms of payouts.
Barnes & Noble certainly is not alone in that respect. Hudson’s Bay is facing investor pressure to sell off its real estate, potentially to fund a go-private transaction. Macy’s recently fended off an activist wanting that retailer to much of the same. Kate Spade in May sold itself to Coach following activist pressure to look for a buyout. Women’s apparel retailer New York & Company, Inc. in April defended its strategic plan to an activist wanting it to appoint a new independent director. And Whole Foods' decision to sell itself to Amazon likely has much to do with wanting to escape activist pressure of its own.
For their part, retailers have their reasons to push back against stockholding agitators. Macy’s wanted to protect its balance sheet and future by keeping its most prized real estate and taking a slower path to monetize its holdings than what Starboard Value wanted. As for buyouts, legacy debt from leveraged acquisitions by private equity companies in years past is currently sending many several retailers into bankruptcy, including Gymboree and rue21, to name just two.
