August 17, 2011 4:35 pm

Barnes & Noble may see Liberty Media invest, not purchase

This article is provided to FT.com readers by dealReporter—a news service focused on providing insightful intelligence on event driven situations to investors. www.dealreporter.com

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Barnes & Noble (NYSE:BKS) is still in active discussions with Liberty Media, though constraints on financing may prohibit a whole company deal and instead lead to an investment, a source familiar with the situation told dealReporter.

On 17 May Barnes & Noble announced it had received a proposal from Liberty Media to acquire the New York-based book retailer at a price of USD 17 per share in cash. A spokesperson for Barnes & Nobel said it was company policy not to comment on market speculation. Liberty Media was not immediately available for comment.

Two sources familiar with the situation and an industry banker following the situation said financing constraints had quieted deal talk. One of the sources said that a preferred share investment was one avenue being actively discussed between Liberty and Barnes & Noble. While the purchase of Barnes & Noble was not completely off the table, one of the sources said, an investment may be more likely.

The source said that parties were working on an opportunistic basis in the volatile markets in order to solidify some type of investment agreement on an “as soon as possible” basis.

Both the industry banker and the source said no other retailer was looking at Barnes & Noble at the present time. The source said this put Liberty Media in the cat bird’s seat.

In recent days, the banker said markets were buzzing with rumors and speculation Wal-Mart (NYSE:WMT) could be interested in Barnes & Noble. However, the banker said the speculation appears to stem from a rumor that Wal-Mart was a spurned bidder in the BJ’s Wholesale (NYSE:BJ) sale process. Without commenting on the validity of that rumor, the banker said Wal-Mart was not a likely buyer for Barnes & Noble. Peter Wahlstrom, an analyst at Morningstar, said if other bidders were indeed interested in Barnes and Noble they have had plenty of time to express themselves.

Wahlstrom said his fair value estimate for Barnes & Noble, based on discounted cash flows for the next 10 years, was USD 17 to USD 18 per share. He added that the bricks and mortar book stores are supporting the company’s investment in the eReader business and the hope is that this will be paid off down the road.

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