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Was Microsoft (MSFT) Hedging Surface With Barnes & Noble (BKS)’s Nook?

Was the Microsoft Corporation (NASDAQ:MSFT) bet on Barnes & Noble, Inc. (NYSE:BKS)’s Nook just a costly hedge for the Surface tablet? That’s the possibility brought up by Cory Johnson in a report on Bloomberg West.

The comment about the Surface and the Nook tablets came up in the wake of a costly breakup between Microsoft Corporation (NASDAQ:MSFT) and Barnes & Noble, Inc. (NYSE:BKS) on Thursday. The Windows maker and the books retailer exited their deal with Microsoft losing $175 million in the process.

“I wonder more if this is really about them realizing that the Surface is working for them in the ways they want it to work. And the Nook could have been a way for them to kind of hedge their bets ahead of the launch of the Surface. What the Surface has done, it initially had a really rough run but it seems to be doing a little bit better right now,” Johnson said.

He noted that Microsoft Corporation (NASDAQ:MSFT) may thinking that the Surface is helping the company now and took the opportunity when Barnes & Noble, Inc. (NYSE:BKS) offered to pay them something to exit the Nook business.

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It should be noted, however, that this was an expensive hedge for Microsoft Corporation (NASDAQ:MSFT), even though they are one of the most profitable companies in the world. The company initially agreed with Barnes & Noble, Inc. (NYSE:BKS) to invest $605 million in the Nook business.

Their initial investment was $300 million, with more coming through to 2017. The recent buyout gave the Windows maker $125 million back, hence the loss of about $175 million.

Microsoft Corporation (NASDAQ:MSFT)’s largest institutional investor is Jeffrey Ubben’s ValueAct Capital which reported by the end of the third quarter a stake made up of about 74.24 million shares. Also by the end of the September quarter, Barnes & Noble, Inc. (NYSE:BKS)’s largest institutional investor was David Abrams’ Abrams Capital Management with about 4.12 million shares in the company.

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