Barnes & Noble Surges After Microsoft Invests in Nook

$300 Million Could Help Nook in Tablet Wars

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Barnes & Noble shares had a record increase today after announcing that Microsoft will invest $300 million in a new subsidiary combining the bookseller's Nook digital reader and college businesses.

The new illuminated Nook
The new illuminated Nook

The shares jumped 83%, to $25.06, a few minutes after the market opened in New York. It was the largest intraday gain since Barnes & Noble's initial public offering in 1993. Its stock was down 5.5% on the year until today.

The investment will give Microsoft about 18% of the unit, which has yet to be named, B&N said today in a statement. The bookseller will own the remainder of the business, which has a valuation of $1.7 billion. That's more than double Barnes & Noble's market capitalization on April 27.

Barnes & Noble is working to bolster its Nook unit to focus on the growing demand for digital books and to compete with Apple and Amazon, whose Kindle device is the best-selling e-reader in the U.S. The venture will develop a Nook application for Windows 8, the newest version of Microsoft's operating system that 's scheduled for release this year, expanding Barnes & Noble's digital bookstore to hundreds of millions of customers.

The partnership with Microsoft could give the Nook the kind of content and global expansion to make it a bigger player in the tablet business, said Michael Glickstein, chief investment officer with G Asset Management, an investor that has pushed for Barnes & Noble to spin off units. That kind of partnership makes the Nook business more valuable,he said.

"With the new Windows rollout, there are so many things you can do with the Nook beyond e-reading," Mr. Glickstein said today in a telephone interview. "Now that Bill Gates and Microsoft are in on the tech side, it's absolutely compelling."

Barnes & Noble has also settled its patent litigation with Microsoft, and the new unit will have a royalty-bearing license, according to the statement.

Barnes & Noble estimates that the Nook business, which was started in 2009, will account for sales of $1.5 billion, or about 20% of its total revenue, in the fiscal year ending today.

In the quarter that ended Jan. 28, revenue from the Nook unit rose 38%, to $542 million, while total sales rose 2% at Barnes & Noble's 690 retail stores. The company has about 30% of the U.S. e-book market, vs. Amazon's 60%. Barnes & Noble posted a net loss of $70.6 million in the 12 months through January.

Barnes & Noble put itself up for sale in 2010 following pressure from investor Ron Burkle. The process ended with Liberty Media Corp.'s investing $204 million last August.

As part of its move to become more of a technology company, Barnes & Noble last month named former cable TV- executive Michael Huseby chief financial officer.

-- Bloomberg News --

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