In headline value and raw percentage terms, Microsoft's (MSFT) $300 million lifeline to Barnes & Noble (BKS) in exchange for a chunk of its NOOK e-book business would seem to be all about David pulling one over on Goliath. And in some ways it is, with Barnes & Noble shares nearly doubling to a three-year high. But truth be told, aside from one incredibly savvy and/or lucky New York—based hedge fund (Jana Partners, which became the largest shareholder in Barnes & Noble a week ago), very few investors had anything nice to say about this stock, let alone wanted to own it.
For its part, the $300 million transaction skims a nearly-invisible 0.5% from Microsoft's $60 billion cash pile, but gives it something far more valuable than a minority stake in the soon-to-be spun off and renamed NOOK business. That's right, this tiny deal gives Microsoft the 'spotlight' and gets people talking about them. But best of all, it puts them on the debate docket alongside Apple and Amazon. Jackpot!
"The deal does make sense," says Jeff Macke (who owns Microsoft stock) in the attached video. "It allows Microsoft to kind of establish itself at the low end of the e-reader market and to get into the education space with a hardware front."
Add in the critical launch of their new pending Windows 8 operating system this fall, and this dinky deal today takes on an additional role: that of bridge to the mothership's future flagship software package.
As for the stock, Macke is joined by nearly two dozen analysts who currently rate Microsoft a "buy." While this investment may not add to their existing bullishness, it certainly doesn't detract from it either. And given the company's M&A track record, that also counts as a win.
- Investment & Company Information