Updated with company statement: Barnes & Noble shares leaped about 12% this morning after hedge fund Sandell Asset Management Corp urged the book retailer to sell itself following “strategic missteps and many troubling related-party transactions.”
B&N shares lost nearly 40% of their value over the last 12 months as the retail chain struggled to compete with Amazon. It currently has a market value of about $565 million.
In a letter to the B&N board, Sandell Assett Management CEO Thomas Sandell calls the steep decline “shocking” since “physical books, and physical bookstores, are not going away anytime soon” — and the chain’s expected future sales justify a higher stock price.
Although founder and Chairman Leonard Riggio created “an iconic company,” Sandell believes it blundered by splitting off its college book business and investing heavily in its “failing and poorly-conceived” Nook digital reading platform.
Between that, and Wall Street’s diminishing faith in retail, B&N shares “may not fairly reflect its intrinsic value anytime in the foreseeable future if it remains a stand-alone company,” the investor says.
Instead, it adds, it “should be owned by an organization with both the vision and stability of capital that investors in the public market generally cannot provide.”
Looking at Amazon’s recent $13.7 billion agreement to buy Whole Foods, the investor says that B&N, with 633 stores, “is similar ‘beachfront property’.” It could sell for $1 billion, which would be “a ’rounding error’ compared to the market value of a host of internet or media companies looking for a retail presence, with the added benefit being that Barnes & Noble is already in the same fundamental business, namely the distribution of information.”
Riggio also “clearly has the financial resources to take the Company private,” the letter says.
Sandell says it has a “meaningful” stake in B&N. It also has a long track record of rattling corporate cages: His previous targets have included Heinz, Ethan Allen, and Bob Evans Farms.
B&N spokesperson Mary Ellen Keating says that “neither Mr. Sandell nor anyone from his hedge fund has reached out to us yet, but, we welcome constructive dialogue with all of our shareholders.”
The letter comes nearly a year after the chain unceremoniously ousted Ronald Boire as CEO, saying that the board deemed him “not a good fit for the organization.” In April the company picked Demos Parneros for the top job. He’s B&S’s fourth CEO since 2013.