Liberty Makes Barnes & Noble Bid

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Media legend John Malone's Liberty Capital launched a $1 billion bid for Barnes & Noble after the close Thursday, a deal that values the book retailing giant at about 5 times forward looking cash flow.

Liberty Capital, is a tracking stock of Liberty Media and includes an amalgamation of assets like the Atlanta Braves Major League Baseball team, a controlling interest in Sirius XM Radio and several smaller investments in media companies like Viacom and Time Warner Inc. Liberty Media has scheduled a special meeting of shareholders for May 23 to spin-off that tracker as well as the Liberty Starz tracking stock. Liberty said the plans for the spin-offs will continue.

Liberty Capital offered to pay $17 per share for a 70% interest in the book retailer for about $1 billion, putting up about half of the cash ($500 million) itself and borrowing the rest. The offer is subject to several conditions, including the participation of Barnes & Noble funding chairman Leonard Riggio, both as an equity participant and in a continuing management role.

Barnes & Noble said it has formed a special committee of its board of directors to evaluate the proposal. Lazard Freres & Co. will serve as financial advisers. Morris, Nichols, Arsht & Tunnel LLP will serve as counsel to the committee and Cravath, Swaine & Moore LLP will serve as counsel to Barnes & Noble.

The retailer said it would have no further comment, unless a specific transaction is recommended by the committee.

Barnes & Noble stock quickly soared above the offer price, trading at $18.30, up 30% or $4.19 in early trading Friday -- suggesting Liberty would likely have to up its offer. Liberty Capital stock was down 2.2% ($2 to $87.34 in early Friday trading.

(Update: those stock moves largely held up. Liberty Capital closed at $87.50 on Friday, down 2.1%, while Barnes & Noble closed at $18.33, up 29.9%.)

Barnes & Noble is the largest U.S. book retailer, with 705 retail bookstores and 636 college bookstores in 50 states. Its Nook e-reader also controls about 25% of the market, trailing Amazon's Kindle.

The company tested the deal waters last August, putting itself on the auction block but was overshadowed by rival retailer Borders Book & Music's bankruptcy.

Pivotal Research Group principal and media & communications analyst Jeff Wlodarczak said the deal -- which he valued at about 5 times cash flow -- makes sense for Liberty because Barnes & Noble will stand alone among major book retailers as Borders is likely to shut down its retail locations.

He pointed to Liberty's considerable retail experience -- Liberty Interactive includes home shopping network QVC -- and could improve operational efficiencies at the company.

"Ultimately the move is in keeping with Liberty's strategy of deploying its sizeable excess cash into related industries," Wlodarczak wrote in a research note.

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