As Friday the 13th today would have provided more appropriate timing for the latest events in Barnes & Noble’s corporate soap opera. Though the press release was reportedly ready to go announcing the settlement between the company and activist shareholder Ron Burkle, and Delaware vice chancellor Leo Strine had been notified a settlement was close (NYT), during a conference call yesterday morning “to review final details…negotiations broke down” (WSJ).
By 12:30 Barnes & Noble announced they “were unable to conclude an agreement on mutually acceptable terms”; hours later, Strine issued his ruling, not unsurprisingly supporting the company. He concluded that the poison pill “rights plan was a proportional response to the threat the company faced” and was reasonably designed to prevent “a creeping acquisition without the benefit of receiving a control premium.”
As threatened, by the close of business Burkle’s Yucaipa filed paperwork with the SEC launching a proxy fight designed to unseat chairman Len Riggio and two other current BN board members at the annual meeting on September 28, and asking shareholders to amend the poison pill to allow so that Burkle (and others) could accumulate up to 30 percent of shares before the defense mechanism is triggered. Yucaipa is running Burkle, Wheego car ceo Michael McQuary, and Stephen Bollenbach (advertised during the settlement negotiations as an “independent” director, even though he has clear ties to Burkle) for the board of directors.
As Strine pointed out in his ruling, “there is good reason to believe that Yucaipa will succeed in a proxy contest” with the support of “admiring and devoted fellow traveler” Aletheia plus the votes of other institutional owners. Strine reckoned that if about 91 percent of shares are voted–with about 38 percent locked up by the Riggios and insiders, and an almost equal amount with Burkle and Aletheia–shareholders controlling 8 percent of the stock, or approximately 4.75 million shares, could tip the balance. (According to online records, the four largest institutional owners hold over 7 million shares by themselves.)
The market has been understandably perplexed by the developments: yesterday shares were up on the rumor settled, down on the end of talks, up again with the Delaware verdict, and down again this morning on the looming proxy fight.
The big question now is whether this proxy fight ever makes it as far as the annual meeting. While some investment analysts have questioned whether founder and chairman Len Riggio wants to take the company private or is ready to cash out and let someone else take control, the idea of Barnes & Noble as a public company without Riggio on the board–exercising a strong voice on the company’s “strategic alternatives”–is all but inconceivable. As chancellor Strine observed in his ruling, though BN technically and barely meets the criteria for having a majority of independent directors, it “continues to have a good deal of the feel of the board of a controlled company.”
So our reasoning would suggest that if Barnes & Noble cannot guarantee sufficient support for its slate of directors in a very short timeframe, the odds of a deal to take the company private only increase.