Coverage of the first day of testimony in Ron Burkle’s lawsuit against Barnes & Noble in Delaware makes for fascinating, if not crystal clear, reading.
Burkle indicated that he considered–but then rejected–a buyout bid for BN last year at $25 a share. (The stock now trades for under $13, its lowest point in years.) He accumulated stock last fall because he thought the company was historically cheap–“This was one of those things you would look back on and say ‘this could never happen again'”–but on that point he’s already been proven wrong by the market.
Burkle is considering nominating his own slate of three directors to fill the positions that are up for re-election at the September 30 annual meeting. (Chairman Len Riggio’s seat is one of the three to be voted on.) But as Burkle described it to the court, the rules under the poison pill provision are so restrictive and unclear that he believes he cannot discuss such a plan with other shareholders. (He’s certainly made the idea public now, however, so perhaps the suit was designed to help that problem solve itself.)
“It appears that rules were written to be vague,” Burkle said in court. “If you step into anything that is a gray area, which in our opinion is almost everything, then the penalties are very, very draconian.” In one of his most widely-quoted elegant statements, Burkle said, “We are sitting in a company that we think the rules are kind of unfair and unclear.”
The biggest point of contention so far in the testimony–which may be illuminated further today when Len Riggio is on the stand–is exactly what Burkle wanted BN to do about Borders. Burkle says that Burkle he told Len Riggio he had met with Borders’ previously controlling shareholder Bill Ackman at Pershing Square to discuss having BN buy some of Borders’ best assets if the company went bankrupt. Further, “Burkle said under testimony that he told Riggio buying Borders was a bad idea.”
But BN director Patricia Higgins says the board relied on Riggio’s version of that conversation in which he told BN’s directors the opposite: “Higgins said under testimony that in a meeting on Nov. 17 [when the poison pill was adopted], Riggio told the board Burkle wanted Barnes & Noble to buy Borders Group…. Notes taken by a Barnes & Noble lawyer during the meeting recorded Riggio telling the board that Burkle was working with William Ackman of Pershing Square Capital Management.”
Higgins also indicated “the board was concerned that Yucaipa might try to wage a proxy fight or join with other shareholders to try to gain control of the company without paying a premium to other shareholders.”
Burkle also testified to some of his ideas for making the bookseller more profitable, “including forging alliances with Hewlett-Packard Co. and Microsoft Corp. to offer electronics in retail stores and to print paperback books on-demand, without having to maintain large inventories.”