The Nook is headed for a bad ending.
Barnes & Noble Chairman Len Riggio, who holds a 30 percent stake in the company, said yesterday he wants to take the struggling bookseller private. Problem is, he only plans to bid for the retail stores and website — not the Nook e-book business.
While the bookstores continue to churn out a profit despite slumping sales, the Nook unit is bleeding red ink and faces increasingly brutal competition from Apple’s iPad and Amazon’s Kindle.
“The issue is whether there is positive value in money-losing, increasingly poorly positioned Nook Media division,” Credit Suisse wrote in a note to clients.
B&N has been spending heavily to develop the Nook. Credit Suisse expects the e-book division to lose $300 million this year, on top of $262 million in losses last year.
In contrast, the stores generated $317 million in earnings before interest, tax, depreciation and amortization, or Ebitda, in fiscal 2012.
Without profits from the bookstores, Wall Street doubts that Nook Media — which includes the company’s college-store chain and the Nook e-reader business — can survive on its own.
“Left alone, even with cash, will that business make it on its own, or is taking out the positive cash flow of retail … a death knell for Nook Media?” Credit Suisse wrote.
Faced with that dilemma, there is speculation that Barnes & Noble may stop plowing money into developing the Nook and farm it out to a licensing partner instead.
Microsoft owns a minority stake in Nook Media, as does UK publisher Pearson.
Indeed, some industry insiders said the company’s board may try to line up a Nook licensing deal before approving the sale of the retail stores.
In recent years, B&N has looked at a number of options for the troubled company, including spinning off the Nook division.
Before Riggio’s offer came along, it had also been trying for close to a year to unload its 689 book stores and 674 college bookstores, according to sources.
Riggio didn’t disclose any terms of his bid, which will be reviewed by a special board committee of three independent directors.
Billionaire John Malone, who controls a roughly 17 percent stake in the company, will be a key factor in any deal. In 2011, he made an offer to buy all of B&N for around $1 billion, but the talks fell apart over how to value the Nook business.
B&N is scheduled to report third-quarter results Thursday.
Shares rose 11.5 percent yesterday, closing at $15.06.