Wednesday, February 17, 2010

BKS Speaks Volumes

As expected, the Barnes & Noble Board of Directors (Read the Riggio family) has spurned Ron Burkle's (Yucaipa) attempt to raise his BKS stake without triggering a poison pill. The letter to Burkle says a lot more than "No".

The letter reads:
Dear Mr. Burkle:

The Board of Directors has carefully considered your letter of January 28, 2010 requesting that you and your affiliated funds be allowed to collectively acquire 37% of Barnes & Noble’s outstanding shares without triggering Barnes & Noble’s Shareholder Rights Plan.

The Shareholder Rights Plan was adopted last November in response to a rapid accumulation of a significant portion of Barnes & Noble’s outstanding common stock, and is intended to protect our shareholders from actions that are inconsistent with their best interests. The Board has determined by unanimous vote that acceding to your request would not be in the best interests of all Barnes & Noble’s shareholders.

As you have expressed concern regarding the “free and fair exercise of the shareholder franchise,” we would remind you that Barnes & Noble previously announced its intention to submit the Shareholder Rights Plan for shareholder ratification within 12 months of its adoption.

The Board also would like to correct a misstatement contained in your letter regarding the total stock holdings of the Riggio family and other Company insiders. Please be advised that, excluding options that are not votable, Barnes & Noble’s directors, management and other executive officers currently hold approximately 31% of the Company’s outstanding stock.

The Board has also considered your question regarding Excluded Shares under the Shareholder Rights Plan. While the Board does not believe the analysis of the Shareholder Rights Plan reflected in your letter is correct, in order to eliminate any ambiguity the Board has adopted an amendment to the Rights Agreement regarding Excluded Shares. This amendment is contained in a Form 8-K being filed today with the Securities and Exchange Commission.

Finally, the Board is unanimous in its view that there is absolutely no basis whatsoever for the allegations made in your letter.

Yours truly,

Barnes & Noble Board of Directors
This letter is an embarrassment. It leaves no illusions as to whose interests the BKS board is serving. Perhaps this is why there's no press release touting it. The Barnes & Noble board is working against outside shareholders, while claiming the opposite.

The directors are protecting us "from actions that are inconsistent with (our) best interests." How's that for paternalism? This is a smokescreen.

The Riggio's want the benefits of a publicly traded company AND of their own private fiefdom. Where is the outrage? With 31 percent of the vote, who are the Riggio's to say who can and can't own shares in BKS (and at what level). The intellectual arrogance is staggering.

The entire letter is difficult to read. There is the inherent presumption that outside shareholders are morons, incapable of critical thought. Do we really need to fear a "rapid accumulation of a significant portion of Barnes & Noble’s outstanding common stock"?

God forbid. Isn't that what we WANT?

The Barnes & Noble board unanimously decided that the Burke request "would not be in the best interests of all Barnes & Noble’s shareholders." Huh? How do they write this garbage with a straight face?!?

The word "ALL" is glaringly apparent. Show me ONE outside shareholder who thinks Burkle shouldn't be allowed to buy more stock!

This painfully inclusive language attempts to hides the obvious. Only insiders are disadvantaged by the Burkle move. And they aren't ordinary shareholders. Outsiders can't force the company into incestuous transactions. We aren't entitled to multimillion dollar pay packages. We must be "content" with dividends and capital gains. Plebes.

Despite an over-sized yield, capital gains are scarce. See the connection? It would be nice if management spent more time on the business of the business. Instead they are manning the barricades against their own shareholders.

The dichotomy between inside and outside shareholders is precisely what Burkle pointed out. Far from refuting his claims, the management of Barnes & Noble has proven them in six short paragraphs. BKS' leadership has indicted themselves.

The language twisting reminds me of Bill Clinton debating the meaning of the word "is". Funny. Bill Clinton is Ron Burkle's pal and a former Yucaipa partner/consultant. Maybe it's time to bring him back to play word games with the Riggio's. Neither has any shame.

At least the Riggio's are hiding behind their board. They are the one's protecting the little children from the evil Yucaipa. But they'll let us pretend to drive daddy's car sometime this year when we get to vote on that shareholder rights plan. Hurray!

I wonder how the Riggio's (with 30+ percent of outstanding shares) will vote? Yucaipa seems to be the only institutional shareholder that isn't asleep at the Barnes & Noble wheel. Most institutional voting is on autopilot anyway. If they vote at all, they vote with management. This lazy approach is a comfort to lackluster boards (and the managers they hire) everywhere.

The "vote" logic is so circular I'm getting dizzy. The poison pill is blocking Yucaipa and protecting the Riggio's entrenched management. The Riggio-controlled board instituted the poison pill to block anyone from gaining enough shares to force change. So the "intended" vote is a foregone conclusion. And therefore the "free and fair" vote is a straw man argument. The Riggio's have eliminated their only competition. The shareholder rights plan will pass and the Barnes & Noble board will wear it as a badge of honor.

Yucaipa bad. Riggio good. Gotta keep it easy for us simple folk.

"Our" board pats us collectively on the head and says there is "absolutely no basis whatsoever for the allegations made in (Burkle's) letter." What a relief. For a minute there, I thought these guys might not be looking out for me. Yes, sarcasm intended.
Dear BKS Board,

Not all your shareholders are stupid or asleep!

On a good day, some of us even read books.


The Lonely Value Investor
Rarely has open contempt for outside shareholders been on such vivid display. If only more people were paying attention.

Disclosure: The author owns BKS shares.


  1. Do you have any opinion on Borders Group?

  2. I don't own BGP. It's a lottery ticket. If it survives, it will have a sizable payoff. Or it goes broke. Not a bet that I'm comfortable with.

  3. Thanks. I agree with you. If you have amazon and BKS, it's quite difficult to survive with that scale.

  4. Good article

    I also think the letter is a disgrace.

    Is there any chance that the plan will be voted down when put to shareholders?

  5. The Riggio's don't have 50% of the vote so anything is possible... just not likely. Shareholders need Burkle to make a tender offer.