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Barnes & Noble, Inc. Message Board

  • shawnqyist shawnqyist May 20, 2012 11:43 AM Flag

    Next 6 Months

    The market is never rational and will always suffer from historical bias. For example, because Borders went BK, then all book sellers must go BK. This flawed extrapolation is why some stocks are excessively cheap and others way overpriced.
    If you look at the simple facts, B&N has 3 major pieces - (704) B&N Bookstores, The Nook/B&N Online, and (635) College Bookstores.
    Rather than jump through hoops on how the breakout will occur, I will just outline the plan over the next 6 months that I know they will be doing.
    The new B&N will become 3 separate companies with the main intent to really maximize the value of College B&N and the Nook.
    1. College B&N is a profitable operation with monopoly like status on College campuses. Value $700M. (I guarantee you Amazon would buy this division for 1B next year if it was for sale.)

    2. Nook - B&N is a major player and its readers are good. Don't get sucked into the reader/tablet versus Ipad debate. The real money is in future sales of books and B&N Online is well positioned here. Value $1B. (Again, Amazon would buy it in 2 seconds for more than $1B and if you think it couldn't pass Gov. scrutiny, you haven't been noticing the elephant in the room called Apple and how big and dominate they are getting.)

    3. B&N Bookstores - They will close the unprofitable stores and revamp the non-book merchandise away from Music to more toys and gifts. This is already in progress and the intent is to draw in more families who want books and games. B&N hopes to become a destination on a Saturday afternoon. Value 200M. (I undervalued this to be conservative and wait until improvement happens.)

    The Reasons this can work -
    B&N has the one advantage that Borders didn't - almost zero debt. It's this low debt that is the key for me. This gives them the ability to follow through with this plan with ZERO chance of going under.

    Once the 3 divisions are split-out, then it gets exciting as potential suitors for each piece can come forward.

    The above is quite simple to follow and is the blueprint the company has set. It conservatively values the stock today at $34. I know this is the target the company is shooting for.

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    • As much as I like $34 for each share, I listed the 3 scenarios that might get an even higher price and are not so crazy as they might sounds.

      1. Microsoft buys the company. This one makes sense with the investment they just made. Bottom line for Microsoft - either they go all in and compete in tablets or give up and sell MS Office from now on. The PC market will never recover and at some point, they better get desperate for a tablet to save the flagship Windows OS. It would make sense to turn to B&N and gobble it up along with some other small players. Price $2.5B or $40/share.

      2. Apple buys the entire company and divests the Nook to Microsoft. Why - To Hurt Amazon, reduce competition and add Mac's, Ipads, Iphones to every B&N store. If there is one thing I know, its Apple can bring in the customers. That store would be profitable right now and the Apple crowd is a similar customer to B&N and even the books would sell better. (Chances are remote, which is too bad given how good the synergy would be). Price - 2.5B again.

      3. Amazon Buys the Entire Company. (Can happen.) Big obstacle is Gov. approval. But with ebook sales the future and the elephant called Apple dominating on Tablets, I think they can get approval. Publishers would be the major obstacle, but Amazon can smooth it over by playing nice and with B&K out of the way - it become an Apple/Amazon race. Again, 2.5B is the reasonable target.(Amazon would really love the store fronts - all 1300 of them. And Amazon no longer cares about the tax consequences since they are going to pay sales tax.)

      Keep in mind that $2.5B is nothing for these companies. For them, they get rid of a competitor, get the assets they want, and then leverage the store fronts as new channels for customers.

      Again, this is not Borders with huge debt and no Online/Tablet presence. B&N has low debt, nice stores, the really attractive Campus stores and the Nook.

      And it's market cap is only $985M. This discount won't last forever. I'm not selling 1/2 until $30, but I expect $34 for the rest of my shares.

 
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22.63+0.02(+0.09%)Jul 10 4:03 PMEDT

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