Tuesday, May 01, 2012

Microsoft invests $300 million in B&N Nook subsidiary for a 17.6 percent share

In January, Barnes & Noble announced that it might spin off its digital business, which includes its Nook e-reader. On Monday, it just got a big backer for its new subsidiary: Microsoft.

Microsoft is investing $300 million in the new unit, named Newco for now, for a 17.6 percent share. That translates to a valuation of $1.7 billion, which is interesting since prior to today, Barnes & Noble in its entirety wasn't even valued at $1 billion. Early Monday morning, its stock was at $22.15, up $8.47 or 61.89 percent. With that increase, it was valued at $1.29 billion.

In addition, the companies announced that there will be a Nook application for Windows 8 tablets, set to be available this fall. You'd expect that app to be pre-installed and in a prominent position on home screens.

There might be moves in other areas, as well. There is already a Nook application for Windows PCs, but there is none for Windows Phones.

It's an interesting conundrum for the Redmond, Wash.-based company. This investment gives Microsoft a share of a subsidiary which sees the Nook device central to its business. The Nook uses a forked version of Google's Android platform, currently the No. 1 mobile device platform globally, while its own smartphone platform continues to languish.

In addition to Barnes & Noble's digital business, the subsidiary will include the retailer's college business, too. B&N gets a needed infusion of cash, and Microsoft gets into the e-book business, which has been dominated by Amazon.com and Barnes & Noble, but also includes its mobile device competitors Apple and Google.

Newco, which to be clear is just a working name, will have some sort of relationship with Barnes & Noble retail stores, but it is unclear what that will be. At the very least, we'd expect Nook users with Tech Support issues to be able to visit a retail store, as that has been one of the advantages the company has been using against Amazon.com's Kindle.

The two companies have also confirmed that this means an end to any patent litigation between them. Going forward, Barnes & Noble and Newco will have a "royalty-bearing license under Microsoft’s patents for its NOOK eReader and Tablet products."

Long-term, Barnes & Noble added, Newco may nor may not be separated from the main company. Barnes & Noble said it will "explore all alternatives for how a strategic separation of Newco may occur," but that there can be no assurance that the review will result in a strategic separation or the creation of a stand-alone public company."

There is also no set timetable for the review.

While Barnes & Noble stock has skyrocket over the news, on Monday morning, Microsoft stock had hardly budged at all, moving up a mere $0.02.

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