Barnes & Noble Inc. (NYSE:BKS) is a relic of an era long gone – an ancient era of books, bookshelves and bookstores. The arrival of digital devices, ebooks, and online retailers such as Amazon.com Inc. (NASDAQ:AMZN) has practically eroded the fundamentals of the business and Barnes & Noble is a shadow of its self. The stock of the firm is trading around $7.80 per share, it has a market cap of a measly $561.64M and the stock is down 20% in the last five years to massively underperform the 85.18% gains in the S&P 500 and the 57.5% gains in the NYSE Composite as seen in the chart below.
Despite the poor performance of Barnes & Noble in the last couple of years and its uninspiring outlook, the stock is booking gains of 10.64% to trade around $7.80 per share at 10:55AM EST today, July 25, 2017.
The main reason behind the massive uptrend in the trading price of Barnes and Noble is fresh news indicating that an activist investor is proposing a solution that could unlock increased shareholder value for Barnes & Noble investors down the road.
Earlier this year, Barnes & Noble CEO Demos Parneros noted that “we’re examining every aspect of the business and our customer value proposition”; hence, the news of a proposal to unlock value is causing Wall Street to embrace the stock.
Here’s how an analyst plan to unlock increased shareholder value on BKS
An activist investor, Sandell Asset Management today has revealed that it has bought a sizable stake to make it one of the 10 biggest investors in Barnes & Noble because “physical books, and physical bookstores, are not going away anytime soon.” As part of efforts to get maximum value out of the firm for itself and other stakeholders, Sandell is suggesting that Barnes & Noble hire an investment bank to explore strategic alternatives towards “achieving a privatization” because the firm is no longer getting value as a standalone public company.
Sandell believes that Barnes & Noble is unconscionably undervalued at $7 per share and a market cap of $530 million. The firm believes that investors could get up to $12 per share in a private deal. The firm notes that “what makes the under-valuation of Barnes & Noble all the more shocking is that, as opposed to the numerous other national apparel, footwear, grocery, and home furnishing chains abounding in this country, there is but one truly national bookstore chain.”
Barnes & Noble has declined to comment on Sandell’s proposition but Wall Street’s response to the news suggest that most investors believe that Sandell’s proposition should be pursued. Nonetheless, we should note that Sandell’s investment in Barnes and Noble probably falls below the 5% threshold that SEC sets for the necessity of filing a 13D – the activist investor might not really be in the position to wage a proxy fight. However, the fact that investors are loading up shares of Barnes & Noble suggests that the management should consider a private sale of the firm.