Liberty Media's New Strategy (revised) - Analyst Blog
19 8월 2011 - 8:36PM
Zacks
In a major strategic move,
Liberty Media Corp.
(LCAPA) has abandoned its plan to buy a controlling stake in
Barnes & Noble Inc. (BKS), instead will invest
in the company. Last May, Liberty Media decided to acquire 70%
stake of Barnes & Noble for around $1.02 billion.
Yesterday, the two companies jointly announced that as per the new
deal, Liberty Media will now invest $204 million to purchase
preferred stock of Barnes & Noble, which can be converted into
approximately 12 million shares of the latter. These preferred
stocks will pay an annual dividend of 7.75%.
Barnes & Noble is the largest bookseller of the world. The
company currently operates 705 general bookstores and 636 college
bookstores throughout the U.S. However, in the last couple of
years, the traditional booksellers industry is struggling severely
from the growing competitive threat from large online retailers
such as
Amazon.com Inc. (AMZN) and discount
retailers such as
Wal-Mart Stores Inc. (WMT).
Despite this, we believe Liberty Media’s earlier decision to
acquire Barnes & Noble was primarily due to an extensive
digital business of the latter, which grew by a substantial 64% in
the previous quarter. This is in major contrast with the declining
print book sell of the company. In 2009, Barnes & Noble created
a powerful e-book reader called the Nook to revamp itself as a
digital bookseller. Nook commands about 25% of the global e-book
market and at present is the second largest e-book reader after the
“Kindle” of Amazon.com.
Various industry sources reported that the cancellation of earlier
deal was mainly due to the disagreement among the two entities. The
conflict was regarding how to value the Nook inlight of massive
fluctuations in the stock market and an ongoing economic
volatility. This critical situation may restrict Liberty Media to
invest a huge amount of cash in order to diversify in a completely
different business segment.
Nevertheless, we believe the new deal will provide three positive
factors for Liberty Media: (1) it will strengthen the company’s top
line due to a big dividend (2) the company will get two seats on
Barnes & Noble’s board of directors since the convertible
preferred stocks will effectively give 16.6% controlling stake to
Liberty Media, and (3) the company may increase its stake in future
if e-book reader business flourishes in future.
(Note: we are re-issuing this article due to an error. The original
version, published earlier, should not be relied upon.)
AMAZON.COM INC (AMZN): Free Stock Analysis Report
BARNES & NOBLE (BKS): Free Stock Analysis Report
LIBERTY M CAP-A (LCAPA): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis Report
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Liberty Media Corp. - Liberty Cap Class A Common Stock (MM) (NASDAQ:LCAPA)
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