By Spencer Jakab
Something you'll never see on a flashcard: 1+1=3. Business
presentations are another matter, though, and the numbers just
might add up this time for Barnes & Noble Inc.
The troubled bookseller said last June that it would spin off
Nook Media. This is the business that hawks its eponymous e-reader.
That money-losing device isn't its main attraction, though; rather,
it is the college-bookstore franchise attached to it. That business
is being remade into an education company that will include
study-guide marketplace Flashnotes Inc., which B&N on Monday
said it would invest in.
But why did B&N want to sell Nook Media's very different
units together? Two reasons: The device business's losses meant it
couldn't stand on its own and financial partners Microsoft Corp.
and Pearson PLC had ownership in both combined.
Since that announcement, those companies have sold back their
stakes to B&N. So, late last month, the company changed its
plans and said it would retain Nook in its main retail unit while
spinning off the education unit on its own.
Expect more details when B&N on Tuesday unveils results for
its fiscal third quarter ended in January. These should show a
continued improvement in profitability as Nook losses are again
reduced. Analysts expect earnings per share of $1.48 compared with
86 cents a year earlier.
B&N's debt-adjusted market value is today equal to 33% of
revenue. This is up from 22% before the initial spinoff plans were
announced last June. That makes sense, and the unit to be spun off
in August could well reward shareholders handsomely. Pure-play
education peers fetch far higher multiples of revenue. The prices
paid to buy out Pearson and Microsoft, which valued Nook Media at
between $560 million and $680 million, certainly appear modest.
Meanwhile, the main retail unit is profitable and is the natural
place for Nook to reside. B&N said "core" same-store sales,
which exclude Nook, rose slightly during the holiday period. With
hardware manufacturing now outsourced to Samsung Electronics Co.,
the company can and perhaps should keep Nook as a loss leader.
B&N got schooled when it attempted to compete with
Amazon.com Inc.'s Kindle business. Its spinoff plans, which
initially looked like a thinly disguised plan to close the book on
Nook, now seem far more sensible.
Corrections & Amplifications
Barnes & Noble is investing in Flashnotes Inc. An earlier
version of this article misstated that Barnes & Noble is buying
Flashnotes.
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