Court Battle Begins for Control of Barnes & Noble

July 12, 2010
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July 12 – July 18, 2010 Edition Court Battle Begins for Control of Barnes & Noble

AUTHORLIK NEWS/July 12, 2010–Investment giant Ron Burkle’s Yucaipa Alliance and the Riggio family, who founded Barnes & Noble, Inc., began fighting in court last week over an issue that could determine who controls the bookstore chain. The non-jury trial got underway in Delaware Chancery Court with both Burkle and B&N Chairman Leonard Riggio testifying.

Burkle seeks to overthrow Barnes & Noble’s poison pill anti-takeover agreement, so that he can gain seats on the board, buy more shares, and most likely take control of the company. The poison pill strategy put in place by the board last November blocks any hostile takeover and ensures that the Riggio family will remain the controlling shareholders.

The November shareholder rights agreement (the so-called poison pill) could allow investors to buy large amounts of stock at cut-rate prices — making a hostile takeover prohibitively expensive – in the event that an outsider acquires 20 percent or more of the shares, according to Reuters. The Riggios hold about 32 percent of the stock, according to the lawsuit. Yucaipa said when it filed the lawsuit that it had a 19.6 percent stake in Barnes & Noble, making it the largest outside shareholder.

Yucaipa contends New York-based Barnes & Noble adopted the poison pill after Burkle increased his shares and criticized management for buying Barnes & Noble College Booksellers Inc. last year from Riggio for $514 million. The Riggios used Barnes & Noble as a “personal piggy bank,” authorizing a deal for the college chain “at an above- market price,” Yucaipa alleges in its complaint.

Testifying Friday at the non-jury trial in Delaware Chancery Court, Leonard Riggio said Barnes & Noble’s board adopted the anti-takeover defense at a November 17 meeting after Burkle’s Yucaipa Cos had taken a stake of nearly 18 percent.

“The board did that because it was very, very concerned with the roll-up of stock at Yucaipa in the first place, that they could gain control of the company by just continuing to buy shares in the open market,” Riggio said.

Asked whether he had at the board meeting expressed concern that Yucaipa could also push Barnes & Noble into an unwanted takeover of troubled rival Borders Group Inc., Riggio said: “Close, but not exactly. Let’s leave it at yes.” Barnes & Noble, with $5.81 billion in sales for the year ended May 1, said last month it might see a loss of as much as 40 cents a share next year because of a $140 million investment in its digital book unit.

Since the law suit was filed, shares of Barnes & Noble stock have declined by about 37%, but were up Friday by 54 cents or 4.2 percent at $13.28 on the New York Stock Exchange.

The case is Yucaipa American Alliance Fund II LP et al v. Riggio et al, Delaware Chancery Court, No. CA5465.

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