Sandell Issues Letter to Barnes & Noble Board of Directors

Sandell Believes that the Iconic Bookseller Should Not be a Stand-Alone Public Company; A Value of $12.00 per Share, and Possibly Higher, Could be Justified in a Going-Private Transaction

Public Market Not Hospitable for Retailers; Stakeholders Better Served by Barnes & Noble Operating as a Private Entity or as a Division within a Larger Organization

Investor Views Barnes & Noble Stores as “Beachfront” Property that may Hold Significant Strategic Value to Internet or Media Companies Seeking a Retail Presence

Sandell Seeks Constructive Dialogue with the Board of Barnes & Noble

NEW YORK--()--Sandell Asset Management Corp. (“Sandell”) has acquired a meaningful ownership stake in Barnes & Noble, Inc. (“BKS” or “Barnes & Noble” or the “Company”) (NYSE:BKS), the nation’s largest specialty book retailer, and today publicly released the following letter to the Board of Directors (the “Board”) of the Company:

July 25, 2017
The Board of Directors
Barnes & Noble, Inc.
122 Fifth Avenue
New York, NY 10011
Ladies and Gentlemen:

We are strong believers in the vital service that Barnes & Noble provides as the nation’s largest book retailer, and we have accumulated a meaningful ownership stake in the Company, as we think that the current approximately $520 million market value of Barnes & Noble is unconscionably low and fails to reflect the true value of the Company. As you are Board members of a retailer whose existence depends on people’s quest for knowledge, we trust you may be familiar with some of the following comments:


“A room without books is like a body without a soul”Cicero

“When I get a little money I buy books; and if any is left I buy food and clothes” Erasmus

“I cannot live without books” Thomas Jefferson

“I guess there are never enough books” John Steinbeck

“Only in books do we learn what’s really going on”Kurt Vonnegut


We believe that millions of readers in the United States share - to varying degrees - the sentiments expressed in the above quotations. Those shared sentiments help explain our conviction in the potential value inherent in Barnes & Noble. As professional investors, however, we also recognize that the “value” of a publicly-traded company is measured by one sole metric: its stock price. Unfortunately, by this critical measure, we do not believe the true intrinsic value of BKS is being adequately reflected. To put a fine point on this matter, according to Bloomberg, the Enterprise Value (Market Value + Net Debt) of Barnes & Noble has fallen to about 3.2x FY2018E EBITDA, lower than nearly every other publicly-traded retailer. This in and of itself is shocking considering the steep and across-the-board drop in retail valuations that we have seen in 2017.

What makes the under-valuation of Barnes & Noble all the more shocking is that, as opposed to the numerous other national apparel, footwear, grocery, and home furnishing chains abounding in this country, there is but one truly national bookstore chain. So while there may be 10 different stores in a typical urban shopping area where one can go to purchase a T-shirt, there is almost no other “bricks and mortar” option when it comes to buying a book. Yet notwithstanding the ill-considered notion that books are “a thing of the past” proffered by some, a view probably embraced by the same people who also (wrongly) thought that would have put Barnes & Noble out of business 10 years ago, it is our contention that physical books, and physical bookstores, are not going away anytime soon. Furthermore, even if book sales were to decline, it is our belief that the discounted value of the future stream of cash flows that BKS could expect to generate, otherwise known as its intrinsic value, would far exceed the current enterprise value of the Company.

Due credit must be given to the Company’s 76-year old founder and Chairman Leonard Riggio for creating such an iconic company as Barnes & Noble. However, we must also call attention to certain strategic missteps and many troubling related-party transactions that we believe have taken place over the years on his watch. It is beyond the scope of this initial letter to discuss in great detail these issues, such as the sale of Mr. Riggio’s own college book business to BKS for more than $500 million and the hundreds of millions of dollars that the Company’s failing and poorly-conceived Nook business may have cost shareholders, along with the Company’s inexplicably high SG&A expense structure and parade of CEOs who have come and gone in the last few years. Instead, one need only focus on Mr. Riggio’s inability to reposition Barnes & Noble as a vital strategic retail asset for the vibrant information economy of the 21st Century to see how he has let shareholders down.

In fairness, there are other reasons that Barnes & Noble, and indeed many other publicly-traded retailers, are facing disfavor amongst investors, one prime reason being the massive and indiscriminate sell-off that has plagued the sector in general. It is our opinion that the public market for retail stocks is contributing to a risky and inhospitable environment under which the stock price of Barnes & Noble may not fairly reflect its intrinsic value anytime in the foreseeable future if it remains a stand-alone company. It has become clear to us that all of the Company’s stakeholders would be better served if Barnes & Noble were operated as a private company or as a division within a larger company, which would allow management to focus 100% of its attention on the Company’s underlying operations. To wit, it is our belief that Barnes & Noble should be owned by an organization with both the vision and stability of capital that investors in the public market generally cannot provide.

What highlights the timeliness of this matter are two recent transactions in the retail space, namely the proposed acquisition of Whole Foods Market, Inc. (“Whole Foods”) (NASDAQ: WFM) by, Inc. (“Amazon”) (NASDAQ: AMZN) and the proposed acquisition of Staples, Inc. (NASDAQ: SPLS) by the private equity firm Sycamore Partners LLC, as well as the news that Nordstrom, Inc. (NYSE: JWN) may be exploring a going-private transaction involving members of the Nordstrom family. In each of these cases, sophisticated investors and operators are coming to the realization that the public market is not affording retail stocks fair value and are “putting their money where their mouth is,” signifying that, for all the doom and gloom surrounding retail, there is still capital available to purchase quality assets.

It is a damning commentary on the absurdly short-sighted nature of the public markets that the sole national book retailer in the United States, with strong cash flow (over $180 million in FY2017 Adjusted EBITDA), a loyal customer base, and a truly enviable, countrywide footprint of stores in highly-favorable locations, is being afforded a market value of a mere $520 million. One need only read the following insightful tweet regarding Amazon’s proposed $13 billion purchase of Whole Foods by The Wall Street Journal’s Dennis Berman in order to see this valuation disconnect as well as envision the strategic value that Barnes & Noble may hold: “Amazon did not just buy Whole Foods grocery stores. It bought 431 upper-income, prime location distribution nodes for everything it does.”

It is our opinion that Barnes & Noble, with its 633 stores, is similar “beachfront property.” Even at a purchase price of $1 billion, or close to double the current market value of BKS, such a price would be a “rounding error” compared to the market value of a host of internet or media companies looking for a retail presence, with the added benefit being that Barnes & Noble is already in the same fundamental business, namely the distribution of information. While Leonard Riggio may not have grasped this essential congruence, visionary leaders in the technology, social media, or publishing space may be able to better capitalize on the unique position Barnes & Noble holds.

On the other end of the spectrum, from a purely financial point of view, the robust cash flow and low leverage of BKS makes the Company highly-attractive to a financial buyer such as a private equity firm. We believe a financial sponsor could pay a price of more than $12.00 per share, over 60% higher than the stock price of $7.15 as of July 21, and still generate a 5-year IRR in excess of 20%. In fact, Leonard Riggio himself, with his approximate 18.0% equity stake in the Company, could seek to take the company private in a leveraged acquisition at a fair price for public shareholders, as he had publicly sought to do back in 2013. Indeed, considering the hundreds of millions of dollars that Mr. Riggio has personally realized from the aforementioned sale of his college books business as well as other businesses, he clearly has the financial resources to take the Company private.

For all these reasons, it is our belief that now is the time for the Board of Directors (the “Board”) to retain a qualified, nationally-recognized investment banking firm in order to conduct an expansive strategic alternative process aimed at achieving a privatization of BKS at a price that delivers fair value to the Company’s shareholders. Given our concerns, my colleague Richard Mansouri and I thought it would be most constructive to seek dialogue with the Board of Directors of the Company as soon as is possible, as it is our preference to resolve this situation in an amicable manner. That said, as our persistent efforts as long-term shareholders to see value quite successfully delivered to the shareholders of companies such as Bob Evans Farms, Inc. (NASDAQ:BOBE) and Viavi Solutions Inc. (NASDAQ:VIAV) should illustrate, our firm is prepared to stay the course to see value delivered to the true owners of a company, namely its shareholders.


We look forward to being in contact.



Thomas E. Sandell

Chief Executive Officer


About Sandell Asset Management Corp.

Sandell Asset Management Corp. is a leading private, alternative asset management firm specializing in global corporate event-driven, multi-strategy investing with a strong focus on equity special situations and credit opportunities. Sandell Asset Management Corp. was founded in 1998 by Thomas E. Sandell and has offices in New York, Boca Raton, and London, including a global staff of investment professionals, traders and infrastructure specialists.

Cautionary Statement Regarding Opinions and Forward-Looking Statements

Certain information contained herein constitutes “forward-looking statements” with respect to the Company, which can be identified by the use of forward-looking terminology such as “may,” “will,” “seek,” “should,” "could," “expect,” “anticipate,” “project,” “estimate,” “intend,” “continue” or “believe” or the negatives thereof or other variations thereon or comparable terminology. Such statements are not guarantees of future performance or activities. Due to various risks, uncertainties and assumptions, actual events or results or actual performance may differ materially from those reflected or contemplated in such forward-looking statements. The opinions of Sandell Asset Management Corp. and its affiliates ("Sandell") are for general informational purposes only and do not have regard to the specific investment objective, financial situation, suitability or particular need of any specific person, and should not be taken as advice on the merits of any investment decision. This material does not recommend the purchase or sale of any security. Sandell reserves the right to change any of its opinions expressed herein at any time as it deems appropriate. Sandell disclaims any obligation to update the information contained herein. Sandell and/or one or more of the investment funds it manages may purchase additional shares or sell all or a portion of their shares or trade in securities relating to such shares.


Sandell Asset Management Corp.
Triet Leminh, 212-603-5816
Sloane & Company
Dan Zacchei / Joe Germani, 212-446-1882


Sandell Asset Management Corp.
Triet Leminh, 212-603-5816
Sloane & Company
Dan Zacchei / Joe Germani, 212-446-1882