Sandell Asset Management has acquired a “meaningful” stake in Barnes & Noble and, in a letter addressing the board of the struggling US bookstore chain—citing the likes of Cicero, Thomas Jefferson and Kurt Vonnegut, among others—the activist hedge fund has urged the company to consider going private.
Sandell believes that Barnes & Noble could attract bids of $12 per share—nearly 70% higher than Monday's closing price of $7.10—from a financial buyer such as a private equity firm. When it comes to potential interest from media or internet companies looking to secure a retail presence, Sandell has likened Barnes & Noble’s 633 stores to “beachfront property” the public markets have failed to properly value. Moreover, despite its low leverage and a cash flow of over $180 million in adjusted EBITDA for fiscal 2017, Barnes & Noble had a market cap of $520 million as of earlier this week—that makes it, per Sandell's view, at least, a heavily undervalued target.
But private equity might not be the panacea that Sandell is seeking. Just ask
now bankrupt Gymboree. Or to take another example, earlier this month the once iconic Abercrombie & Fitch announced that it would
abandondiscussions to sell itself after failing to find a buyer willing to match its asking price.
Indeed, PE investment in the retail industry is dropping off. Investors have
made just 117 deals in the global retail sector representing $11.6 billion so far in 2017, per the PitchBook Platform, putting it on pace for the weakest performance for the sector since at least 2013:
On the other hand, Barnes & Noble has a few things going for it that might make it a more appealing target for a take-private deal than other retailers. After all, unlike apparel, footwear, grocery and home furnishing chains, there are now few other brick-and-mortar retail options for buying a book—thanks to Amazon.
That could inspire would-be buyers otherwise wary of retail to pick up the bookstore, if not a book.