Bertelsmann is making good on its 2002 pledge to get out of the e-commerce business by agreeing to sell its 37% stake in Barnes & Noble.com to Barnes & Noble. B&N will pay $164 million to acquire Bertelsmann's interest in B&N.com in a combination of cash and notes equivalent to $2.80 per share. B&N.com's stock closed at $2.04 per share at the end of trading on July 29; B&N announced its purchase after the market closed.
The deal is expected to close within 45 days, at which time B&N will own 75% of the e-tailer's stock while 25% is controlled by the public. No operational changes are planned, although all directors who had been appointed by Bertelsmann, including Random House chairman Peter Olson, will leave the board. B&N.com head Marie Toulantis will continue to report to B&N chairman Len Riggio.
Ewald Walgenbach, CEO of DirectGroup Bertelsmann, said, "Selling our shares in Barnes & Noble.com is in line with DirectGroup's strategy to exit all media e-commerce businesses and focus on our worldwide book and music clubs." Ever since Bertelsmann announced last fall that it was no longer interested in the e-commerce business, it has been widely speculated that B&N would eventually buy out its partner. Bertelsmann bought a 50% stake in B&N.com in 1998 for $200 million and invested millions more over the next few years. Bertelsmann's stake in the company dropped to under 40% following B&N.com's public offering in 2000.
Although B&N.com has never made a profit, Riggio said the e-tailer is on track to produce positive EBITDA (earnings before interest, taxes, depreciation and amortization) in this year's fourth quarter and for the full year in 2004.
Sales at B&N.com rose slightly less than 1% for the second quarter ended June 30, to $86.5 million, and the e-tailer cut its net loss to $14.2 million from $20.6 million. Sales in the consumer division increased 1.2%, to $80.7 million, while corporate sales fell 6.5%, to $5.7 million. (The revenue figure reflects the change B&N.com made at the beginning of the quarter in the way it records sales of used books: the company now takes only the net commission on the sale, rather than the gross sales. Without the change, sales would have been $89.6 million.)
Harry Potter and the Order of the Phoenix and Living History were among the top sellers for B&N.com in the quarter. Similar to Amazon.com, B&N.com said the discounting of Potter generated new customers for the site, although CFO Kevin Frain declined to say how many customers were added. Frain said he hoped that the relatively small sales decline in the corporate side "means we've seen a bottoming-out of this business," and that the unit will start to see gains soon.
For the third quarter, B&N.com is projecting sales between $97 million and $102 million compared to sales of $103 million last year, a figure that included gross sales from used books. The quarterly loss is expected to be trimmed. For the full year, sales are projected to be in the $415 million to $450 million range, compared to sales of $423 million in 2003.
Bertelsmann Will Buy Again
In interviews with the New York Times and Reuters last week, Bertelsmann chief executive Gunter Thielen caused a stir when he said that he would be interested in reviving talks to acquire the AOL Time Warner Book Group once the sale of BertelsmannSpringer is completed. The deal is expected to close in late fall. Reacting to the stories, an AOL Time Warner spokesperson said the book group "is off the market."