We previously wrote that Barnes & Noble (NYSE:BKS) is the market's cheapest technology stock because of the bookstore's surprisingly popular and powerful Nook color ebook reader/tablet. As such, we were not completely surprised when the bookstore chain received a $17 per share cash bid from John Malone's Liberty Media (LINTA). The buyout offer is contingent on several factors including founder and chairman Leonard Riggio's continued management role at and equity ownership of Barnes & Noble.
While this buyout offer presented a roughly 20% premium from the previous day's closing price, the most surprising aspect of the announcement was the bidder and not the price. As recently as late December 2010, Bill Ackman at Pershing Square offered to finance a $16 per share bid for Borders Group to acquire Barnes & Noble.
John Malone is an aggressive and creative deal maker who is not afraid of deal complexity. His network of Liberty corporations own and operate a large and varied network of valuable assets. Most recently, Malone made substantial profits through a deft deal with News Corp for a stake in DIRECTV (NYSE:DTV) and a brilliant investment in SIRIUS XM Radio (NASDAQ:SIRI). Despite Malone's investment prowess, his interest in Barnes & Noble is surprising because there are no obvious synergies with the existing Liberty Media assets.
Of course this does not mean that there are not possibilities. For example, Malone could view BKS' brick and mortar stores as a cheap, cash flow producing asset that could potentially expand the reach of assets such as SIRIUS XM Radio or DIRECTV to consumers. While SIRI has strong growth potential through the automotive industry, there is a sizeable market among urban non car-owners that SIRI could tap into through BKS. We previously listed SIRI among 5 Stocks That Could Double in Price. This upside alone could provide tantalizing synergies with the BKS assets, but Malone's motivations are unclear.
Still, the lack of obvious synergistic potential, makes us believe other interested parties are likely to realize more value in the Barnes & Noble assets.
Google Inc (NASDAQ:GOOG) - Google has become increasingly viewed as a value stock with declining growth. This likely does not sit well with management who probably still view Google as a high growth company. As we previously wrote, this is a long shot, but at some point, Google must look at the Apple store success and wonder if they can replicate at least some of the success. With a relatively minor sized acquisition of BKS, Google would instantly gain a massive store network and a powerful online book and electronic business that would instantly put them in direct competition with Apple and Amazon.
Sears Holding (NASDAQ:SHLD) - Like John Malone, Eddie Lampert is also a creative and aggressive deal maker. Lampert is an adept investor and a proactive hands-on maximizer of shareholder value. But unlike Malone, Lampert has some synergistic potential related to Sears' existing operations and real estate footprint. His experience at Sears makes Lampert a good candidate to rationalize BKS' significant retail stores. This opportunity alone could justify a buyout, but in addition, Lampert should welcome the value of the Nook color. Retail electronics has been one of SHLD's weakest areas and as such, Lampert should see the value in a unique product with high growth potential. We previously listed Barnes & Noble as a possible target in Will Eddie Lampert's Next Big Purchase be in Retail? If Lampert didn't previously see value in the bookstore chain, maybe Liberty's recent overture caught his attention.
Amazon.com Inc (NASDAQ:AMZN) - The online juggernaut has built a successful business without a physical store front. It is in large part because of this internet based model that the company is able to leverage their structural tax advantage over brick and mortar competitors. Because of this, it is obvious that AMZN has no use for BKS' physical stores, but the maker of the Kindle e-Reader could very well be interested in BKS' ebookstore and ebook reader. While Amazon.com is one of the hottest technology stocks and Barnes & Noble clearly operates under a perception of being behind the times, in some ways, the Nook color e-reader has trumped the Amazon Kindle and defined a defensible niche for itself in the consumer electronics market place. With Apple's iPad dominating the position among tablets and the Nook color's improbable success as the market's lowest cost tablet reader, Amazon may see value in acquiring BKS' online bookstore and electronics business.
Microsoft Inc (NASDAQ:MSFT) - It is not a big surprise that Microsoft Inc has struggled to find growth outside of their dominant software business. As we previously wrote, we think Microsoft would benefit from establishing a large scale store footprint to compete with Apple. While we previously suggested in Best Buy is a Good Buy for Dell, Hewlett-Packard or Microsoft, we think an acquisition of Best Buy could be a brilliantly low risk growth opportunity for Microsoft. Still, Barnes & Noble could also be a nice acquisition with an existing cash flow generating store front, a growth opportunity in the electronic book market and a popular consumer electronic product in the Nook Color.