A little more than two years after Barnes & Noble reached an agreement with Microsoft that created Nook Media, the two companies have terminated the original deal. The move frees Microsoft from making any further payments to B&N, while ending B&N’s obligation regarding international content acquisition and sales. In addition, B&N has agreed to buy back Microsoft’s preferred interest in Nook Media. The moves, B&N said, will give it the flexibility it needs to complete the separation of Nook Media (which includes Nook and the college stores) from the retail trade stores. The company said the separation could be completed by next August, although it offered no guarantees.
Under the revised deal with Microsoft, B&N will pay $125 million to buy back Microsoft's preferred shares in a combination of $62.5 million in cash plus common stock. Microsoft will be entitled to receive 22.7% of the proceeds from any sale of Nook Digital, which B&N executives stressed includes only Nook Digital device and content and does not include the college business.
The Microsoft announcement came as B&N released its results for the second quarter ended November 1, 2014 which saw total revenue fall 2.7%, to $1.7 billion and EBITDA decline to $68 million from $78 million in last year’s second quarter. Nook Media sales continued to fall, dropping 41%, to $64 million as both hardware (down 64%) and content (off 21%). The loss was cut to $37.6 million from $45.2 million. In a conference call, B&N CEO Mike Huseby said sales of the Samsung-Nook devices were "not quite up to expectations," although he added that no one is pushing the panic button.
Sales in the retail trade segment dipped 3.6%, to $888.2 million, and earnings fell to $25.3 million from $36.6 million. The sales decrease was primarily attributable to lower sales of Nook products, leading to a comparable store sales decline of 1.5% for the quarter, as well as store closures. “Core” comp bookstore sales, which exclude sales of Nook products, increased 0.5% for the quarter.
Pressed by analysts to give more details about the possibility of breaking up B&N, Huseby would only say B&N is preparing to move ahead with a separation if that is what the B&N board wants to do. He declined to say whether any separation would include both the college and Nook Digital business or just Nook Digital.