Microsoft Corporation (MSFT)’s Buy of Barnes & Noble, Inc. (BKS)’s NOOK Looks More Likely After Nokia (NOK) Deal

Page 1 of 2

After buying Nokia Corporation (ADR) (NYSE:NOK)‘s handset business, Microsoft Corporation (NASDAQ:MSFT) could be more likely to purchase Barnes & Noble, Inc. (NYSE:BKS)‘s NOOK division. Microsoft already owns a minority stake in the business, and merging it with the Windows platform would support Microsoft’s goal of becoming an integrated device company.

Nokia Corporation (ADR) (NYSE:NOK)That would be good for Barnes & Noble, Inc. (NYSE:BKS)’s struggling shareholders. And were it to occur, it would only further cement Microsoft Corporation (NASDAQ:MSFT)’s stated aim of becoming a company focused on creating “devices and services.”

Barnes & Noble needs a bailout
Barnes & Noble, Inc. (NYSE:BKS) is a company in peril. Its past two earnings reports have been weaker than expected, and shares are down nearly 40% in the last three months. Its quarterly losses have been fueled, in large part, by its NOOK division, which continues to burn through cash.

Its retail business is profitable, but even there, things may be looking grim. Leonard Riggio, the company’s chairman, backed out of his plans to buy the retail operation. As an insider, he might have a better idea of the trends affecting the bookstore he founded.

There’s even been some notable insider sales. The Wall Street Journal noted last month that Barnes & Noble, Inc. (NYSE:BKS)’s head of retail sold roughly two-thirds of his shares in the bookseller.

Microsoft has been rumored to be interested in NOOK
In many ways, Barnes & Noble, Inc. (NYSE:BKS) today resembles Nokia Corporation (ADR) (NYSE:NOK) in recent years. And like Nokia Corporation (ADR) (NYSE:NOK), Microsoft could come to Barnes & Noble’s rescue. TechCrunch reported back in May that Microsoft Corporation (NASDAQ:MSFT) was considering buying the NOOK business for $1 billion. That’s more than Barnes & Noble’s entire $800 million market cap, so a deal of that magnitude would send Barnes & Noble shares soaring.

Microsoft Corporation (NASDAQ:MSFT) already owns NOOK, at least partially. Last year it poured $605 million into the NOOK business for a 17.6% stake. At the time, there was really no apparent rationale for the deal. Barnes & Noble, Inc. (NYSE:BKS) brought the NOOK digital bookstore to Windows 8, but it wasn’t an exclusive tie-in. In fact, even to this day, NOOK devices run Google‘s Android operating system.

Microsoft Corporation (NASDAQ:MSFT) may have simply been throwing Barnes & Noble’s NOOK a life preserver, keeping it around so as to maintain the competitiveness of the digital book market, and setting it up for a possible acquisition at a later date.

TechCrunch’s report was back May, and four months later, nothing has happened. Still, it seems more likely than ever that a deal could get done.

In the mold of Apple
Before he announced his retirement, Steve Ballmer unveiled Microsoft’s new strategy: Become a company centered around devices and services. In effect, it’s a plan to turn Microsoft Corporation (NASDAQ:MSFT) into Apple, in the sense that the company plans to create both hardware and software — a strategy championed by Apple’s founder Steve Jobs.

Page 1 of 2