B&N this week issued a formal tender offer to its shareholders for an acquisition bid from Elliott Capital Advisors to buy the bookselling chain for $6.50 a share in an all-cash transaction. The offer will expire on August 6.
Filed this week with the Security and Exchange Commission, the tender offer provides a detailed account of the elaborate acquisition process, including efforts by book distributor ReaderLink (described as Company C in the SEC filing) to acquire B&N, an offer that was ultimately rejected by the B&N special committee, a panel of independent directors appointed to oversee and manage the acquisition process. Though ReaderLink offered a higher share price, the bid was rejected over financing concerns, as well as fears of a potentially complex regulatory review. A timeline in the filing highlights the overall stronger financial credibility of the Elliott offer.
The document also outlines comparative store sales projections that predict growth at a compound annual growth rate of 2.3% between fiscal years 2020 and 2024. B&N projected that between fiscal year 2020, which ends next April, revenue will rise from $3.47 billion to $3.90 billion in fiscal 2024. EBITDA is projected to increase from $152 million in the current fiscal year to $226 million in fiscal 2024. The report also projects reductions in marketing ($10 million), and other reductions ($5 million) through 2024, in addition to a 25% reduction in planned store openings.
According to the SEC document, B&N received multiple “expressions of interest” about acquiring the company beginning in late 2017 and extending into 2018, including a verbal offer by Elliott Advisors in August 2018 to combine B&N with Waterstones, the U.K. bookselling chain Elliott had acquired in early 2018, with Elliott taking a minority interest in the combined firm. In September Elliott Advisors returned with a formal revised offer for a mixed B&N/Waterstones acquisition initially worth $5.65 a share.
About this time B&N formed a special committee of independent directors to oversee the process and engaged the Evercore Group as its financial advisor and Baker Botts LLP, as its independent legal counsel for purposes of evaluating offers and negotiating a final agreement. Eventually in March, 2019, 21 potential bidders (including Elliott and Riggio) submitted offers ranging from $6 to $8.50; and by April Elliott had switched to its all-cash bid of $6. All of this involved setting up secure access to confidential information required for due diligence, as a well as separate set of rules on recusal for Riggio, chief executive of B&N and also a bidder to acquire it.
By May, a number of companies had either dropped out of the bidding or were rejected by the special committee. Although Company C, ReaderLink, had raised its offer to $6.75, the offer still lacked “committed equity financing” and the special committee voted to begin “definitive” negotiations with Elliott. Indeed, the B&N special committee was wary of triggering penalties of $4 million and $17 million if another bidder joined to make a bonafide superior offer after a deadline set in the agreement between B&N and Elliott.
Despite Riggio’s participation as a possible bidder, he had always pledged to abide by the special committee's recommendations for a buyer. Accordingly, by mid-June, Riggio had terminated his original acquisition offer.
The committee unanimously approved the Elliott deal on June 24, 2019, and filed its formal tender offer with the SEC on July 9. Despite the agreement, there is a possibility, though unlikely, of a new offer. But the SEC document shows Elliott Capital Advisors consistently provided the most sound financial offer for B&N. Though ReaderLink reqrouped throughout the process with new offers (including a late offer to partner with two publisher-investors), the special committee continued to express concern that a ReaderLink bid would require a lengthy antitrust review that would take the process into the 2019 holiday selling season.