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August 13 – August 20, 2009 Edition
B&N Buys College Booksellers, Reuniting B&N Brand
NEW YORK, NY/Authorlink News/08/11/09–Barnes & Noble, Inc., the world’s largest bookseller, yesterday announced it has acquired privately held Barnes & Noble College Booksellers, Inc., a leading contract operator of college bookstores in the United States. The deal is valued at $596 million, or approximately $460 million net of College’s cash on hand on the expected closing date.
The company also announced that concurrent with the signing of the definitive agreement to acquire College, B&N has received commitment letters on a new $1 billion, four-year revolving credit facility, which will replace each of B&N’s and College’s existing credit facilities. B&N will finance the transaction through $250 million of seller financing, with the remainder coming from the new credit facility and cash on hand.
College operates 624 college bookstores through multi-year management services contracts, serving nearly 4 million students and over 250,000 faculty members at colleges and universities across the United States. Founded in 1965, College has a diversified, predictable and growing revenue stream derived from the sale of textbooks and course-related materials, emblematic apparel and gifts, trade books, school and dorm supplies, and convenience and cafe items.
In its 2009 fiscal year ended May 2, 2009 (fiscal 2009), College produced revenue of $1.8 billion and same-store sales growth of 1.0%. The company has generated a compound annual growth rate (CAGR) in revenues of 6.2% over the past three years.
Based on College’s fiscal 2009 results, B&N would have realized incremental earnings before interest, taxes, depreciation and amortization (adjusted EBITDA) of $115 million from acquired operations and assets. The transaction will also result in the elimination of B&N’s annual royalty payments for online textbook sales, which amounted to $6 million in fiscal year 2008. Prior to purchase accounting adjustments, including the valuation of intangible assets acquired and related amortization to be determined by an independent appraisal, B&N expects this transaction to be accretive to earnings per share by 30% to 35% on an annualized basis, based on the Company’s full-year earnings per share guidance of $1.10 to $1.40 provided on May 21, 2009.
College, which is currently owned by B&N Chairman Leonard Riggio, has a leading market position in the fragmented $10 billion college bookstore industry, in which approximately 35% of bookstores are operated by College and other third parties, and 65% are operated by the educational institutions themselves. College has 405 current contracts. Over 93% of contracts up for renewal were renewed in the last five years. The Company has a strong new contract pipeline, with new contracts signed in fiscal 2010 forecasted to add $53 million in annualized sales. The industry also has positive demographic trends, with U.S. college enrollment projected to grow from 15.3 million students in 2000 to over 20 million in 2015.
Given the related-party nature of the transaction, the B&N Board of Directors established a Special Committee of the Board to evaluate the acquisition opportunity, negotiate its terms, and make a recommendation to the BKS Board of Directors. The Special Committee is comprised of four independent directors: Irene R. Miller (Chairperson), William Dillard, II, Patricia L. Higgins, and Margaret T. Monaco. The Special Committee is being advised by an independent legal advisor, Davis Polk & Wardwell LLP, and an independent financial advisor, Greenhill & Co., LLC, which delivered a fairness opinion to the committee in connection with the transaction.
Irene Miller said, "Reunifying the Barnes & Noble brand and reintegrating these highly complementary businesses has long been a top priority of the B&N Board. College has a leading position in a market with excellent fundamentals and will add a very predictable and growing revenue stream to BKS. In addition, in a rapidly changing environment, both companies will benefit from a unified digital platform and brand, which will enable the combined company to capitalize on the growing online college textbook and electronic book markets."
Leonard Riggio said, "With US college enrollment projected to reach over 20 million students by 2015, and education-related consumption continuing to increase, a growing number of academic institutions are seeking to outsource their bookstores to an experienced operating partner who can deliver an attractive revenue stream, as well as consistent, high-quality services for students and faculty. College’s leading market position, superior quality and Barnes & Noble branding make it the operator of choice for academic institutions who want a partner with a heritage of retail bookselling, respect for intellectual property, a strong customer service culture and a track record of client satisfaction."
Mr. Riggio continued: "Although both companies previously thrived as separate entities, owing to distinctions in their product offerings, the definition of textbooks and tradebooks has become increasingly blurred. This trend will accelerate with eBook offerings. Thus, combining both businesses on a single branded platform will enable the combined company to cross-promote print and digital offerings to all of our customers." Mr. Riggio noted that College customers also will have seamless access to B&N’s recently launched eBookstore, with more than 750,000 digital titles currently available.
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