Barnes and Noble to Pay Out $29 Million

From Publisher’s Lunch:

The long-running litigation surrounding Barnes & Noble’s August 2009 acquisition of BN College from company founder and chairman Leonard Riggio is finally over, as Riggio has agreed to settle a series of lawsuits launched by shareholders with a $29 million payment from personal funds. But he won’t actually pay out any money personally; rather, he will forgo some money that is currently owed to him by Barnes & Noble. The settlement reduces by $22.75 million a still outstanding $150 million promissory note that Barnes & Noble owes to Riggio as part of College’s acquisition, plus a $6.3 million reduction in interest payments due on the note through its 2014 maturity date.

The settlement comes just five days before a civil trial was set to begin in Delaware Chancery Court on the case, in which shareholders alleged that College’s share price in the $596 million buyout was overvalued and that directors breached fiduciary duties by approving the purchase. On March 27 Judge Leo Strine ruled the suit could move forward.

Law firms Grant & Eisenhofer P.A. and Chimicles & Tikellis represented the plaintiff institutional investors in the case. “We are very pleased with today’s settlement on behalf of Barnes & Noble,” Grant & Eisenhofer partner and co-lead counsel in the derivative litigation Michael Berry said in a statement issued Tuesday afternoon. We believe the transaction as originally structured was unfair to the Company, and are happy the Company will receive this compensation.” The other lead counsel for the plaintiffs, Pamela S. Tikellis of Chimicles & Tikellis added: “The settlement will provide significant financial benefits to Barnes & Noble and its investors as the company further expands its business into the digital market.”

A suspicious, or curious, person would note that the settlement also comes less than a week prior to Barnes & Noble’s reporting of fourth quarter earnings next Tuesday, when some observers are wondering whether the company will more formally separate their bookstore and NewCo businesses.

Also note there is something else unusual about that $150 million note that we confirmed recently. In the various documents filed in late April that put Barnes & Noble’s digital device, digital content and college bookstore businesses into the NewCo in which Microsoft is an investor, that loan remains an obligation of of Barnes & Noble rather than NewCo. This despite the fact that in all other respects the document says that all material liabilities and assets related to the Newco business lines travel with those businesses to Newco.

So the parent company Barnes & Noble–which comprises the physical bookstores, and an 82.4 percent share of NewCo–still owes Len Riggio $127.5 million (as of today) plus interest for the purchase of BN College, even though the college stores now actually belong to NewCo. Barnes & Noble declined to explain why that note was left as an obligation of the parent company rather than NewCo, and also declined comment on the shareholder settlement.

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