Last updated: August 12, 2010 8:43 pm

Barnes & Noble faces Burkle proxy fight

A battle between the board of Barnes & Noble, the US bookseller, and Ron Burkle, the billionaire activist investor, turned into a proxy contest late on Thursday, shortly after the two sides came close to a settlement.

Mr Burkle’s Yucaipa funds said it would nominate him and two others to the bookseller’s board, and propose that the board overturn a “poison-pill” provision that has prevented him increasing his stake in the retailer above 20 per cent.

Barnes & Noble announced earlier the two sides had been “unable to conclude an agreement on mutually acceptable terms” after talks on a possible settlement with Mr Burkle.

The contest pitches Barnes & Noble’s founder and chairman Len Riggio and his brother Stephen, who own around a third of the company’s shares, against a billionaire investor who made his name driving the consolidation of the US supermarket business in the 1990s.

The outline of the failed settlement included Barnes & Noble adding two new independent directors to its nine-strong board, in addition to Mr Burkle nominating a director on behalf of his Los Angeles-based Yucaipa investment firm.

Mr Burkle’s current holding is just below the 20 per cent maximum allowed by the company’s poison pill, making him the second largest shareholder in the company.

Aletheia Research & Management, another California-based fund that has invested alongside Mr Burkle in other companies, owns about 16 per cent of the company, raising concerns at Barnes & Noble that the two investors may act together.

Barnes & Noble also said this month that it was considering a possible sale of the business, had appointed Lazard to serve as adviser to a special committee of independent directors that would lead the process.

Mr Riggio has told the board that he is considering acquiring the company as part of an investor group. Mr Burkle, who started building his stake in the company in 2008, has also indicated an interest in acquiring the company. He testified in a court case over the poison pill provision that he had considered making an offer at $25 a share for the retailer before deciding against it.

The court on Thursday rejected Mr Burkle’s arguments against the poison pill provision.

Barnes & Noble shares were up more than 3 per cent to $14.94 in late trade.

Five years ago, the company’s stock traded above $45.

Barnes & Noble has stepped up investment in its digital business significantly over the past few years, launching an e-reader, the Nook, late last year. It operates 720 book stores in the US and 637 college bookstores.

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