Book lovers, give thanks. Barnes & Noble is saved, as a deep-pockets acquirer steps up to revive the troubled bookseller. If the company had gone under, it would be a gut shot to the publishing industry. And readers. Yes, Amazon, the goliath of book peddling with half the print book market, would gobble up more market share. But a major provider would be lost if B&N vanished, and book sales overall would suffer.
For long-suffering Barnes & Noble investors, a resurgence would be welcome. The company's shares have nowhere to go but up. The stock has leapt 61% since the deal announcement June 7.
The good news: Barnes & Noble, the nation’s largest bookstore chain (it has about a fifth of the physical book market), is to be sold to hedge fund operator Elliott Advisors, headed by Paul Singer, for $638 million. Other potential acquirers have made noises but have yet to step forward. And there’s a powerful disincentive if they do: On Thursday, Elliott’s “keep-shop” provision in its merger agreement expired, meaning that if B&N now goes with another buyer, the break-up fee more than quadruples, to $17.5 million.
The even better news: The guy who is going to run Barnes & Noble has a great track record as a bookstore turnaround artist. James Daunt, a former JPMorgan banker, took over the hapless Waterstones chain in the UK in 2011 and made it successful. Once mired in red ink and tumbling toward extinction, it now boasts double-digit profit margins and logged fiscal 2018 sales of $490 million. Elliott took over Waterstones last year, and Daunt, a Briton, will run both chains, although he’ll be based in New York, which is B&N’s headquarters locale. Barnes & Noble and Elliott didn't respond to requests for comment.
Time was that Barnes & Noble had all the swagger and power that Amazon, which started out as a bookseller, exhibits today. The formula for Barnes & Noble was devastatingly effective for the late 20th century: the big box store approach. The company opened scads of massive stores filled with an enormous number of titles. It sold books at a discount. Independent stores had trouble competing.
Remember the movie You’ve Got Mail, the 1998 rom-com in which Meg Ryan’s character owns a sweet little children’s bookshop that is threatened when corporate giant Foxbooks opens an outlet across the street? That story had a happy ending in that Ryan and Tom Hanks, playing the heir of the Foxbooks empire, became a couple and, while her shop closed, she ended up running the children’s section for Foxbooks.
Well, in the 21st century, Amazon chieftain Jeff Bezos and Barnes & Noble founder Leonard Riggio aren’t about to start a romance. Bezos has waged scorched-earth warfare. Amazon, with its even larger book selection and ease of shopping, has shredded B&N, along with other book chains. Borders, the No. 2 bookseller chain, closed in 2011.
Barnes & Noble has been on a long retreat. Over the past decade, it shuttered 150 outlets, and now has 627. Revenue and profits have shrunk. In the past four years, the stock price has plummeted by a third (that includes the Elliott run-up). The company has been a revolving door for chief executives. Last summer, it fired the fourth one in five years. Aside from closing outlets, B&N has struggled to find a strategy that worked. It now also sells toys and other junky non-book merchandise, to little effect.
Meant to counter Amazon’s celebrated e-reader, the Kindle, Barnes & Noble launched its version, the Nook, in 2009—and it has been a disaster. The Nook, which for some reason the company can’t bring itself to ax, has 2% of the e-reader space, compared to 84% for the Kindle.
Despite these challenges, Daunt and the Elliott juggernaut are arriving at a propitious time for physical books. Turns out that e-books, once thought to be the death of paperbound volumes, are ebbing in popularity, and printed books are making a modest comeback. According to Publishers Weekly, they rose 1.3% in unit sales last year, to 695 million.
Polls show people increasingly like books made from trees, even the electronics-obsessed younger set. Perhaps as a respite from a life spent staring at screens. Who knows? As a result, independent bookstores are showing a resurgence: from 2009 to 2015, the last measurement available, they surged 35%.
So if new CEO Daunt can bring about a much-needed revival at Barnes & Noble, bravo. In Britain, part of his strategy was to allow his stores to tailor their offerings and ambience to local tastes. He is likely to follow that path in the U.S. He also wants to sweep out unprofitable books and open smaller stores, which he indicated in an interview with Yahoo Finance. Let’s hope he firehoses out the toys and the Nook, too.
The printed word seems to have a new lease on life. Maybe someday, someone will write a book about the rejuvenation of Barnes & Noble.
