Barnes & Noble shareholders to consider Elliott offer as details of bid revealed

Barnes & Noble has issued shareholders with a formal tender offer after rebuffing a further bid from US book distributor Readerlink, made after an initial deadline following the agreement with Ellliott Advisors had passed. Meanwhile, Kaskela Law has announced it plans to investigate the company as part of the proposed acquisition by Elliott Advisors for $6.50 a share and has called on stockholders to get in touch. 

The Elliott offer expires at 5pm EST on 6th August and requires approval by a majority of shareholders, according to the latest SEC filing, which reveals how Elliott first proposed a merger in August 2018, three months after acquiring Waterstones, which would have seen B&N's shareholders hold a 51% stake in a combined B&N and Waterstones business.

New York hedge fund and Waterstones owners Elliott entered into a $683m (£537m) agreement to acquire Barnes & Noble on Friday 7th June with plans for Waterstones m.d. James Daunt to be installed as c.e.o. of the US chain and Waterstones, splitting his time between New York and London. 

However, there were then reports that Readerlink was considering making a higher bid. The latest documents reveal Readerlink did go back to Barnes & Noble after missing the midnight deadline on 13th June. Companies are kept anonymous in the US Securities and Exchange Commission (SEC) filing, but the document notes that the Wall Street Journal reported that “Company C was working towards making a bid to top the $6.50 per share offer made by Elliott,” confirming Readerlink’s position. On 18th June, Readerlink submitted a revised offer of $7.25 a share but was rejected amid funding concerns with the offer needing more time to secure “the necessary equity and debt funding” and a “a $201 million gap in their financing source”. 

Readerlink’s offer suggested the company had potential new financing partners but one source was blocked from being given access to the confidential financial documents. Despite efforts by Barnes & Noble to extract a waiver from Elliott to share the financials with Readerlink, giving the board more time to consider the offer, Elliott refused. According to the SEC filing, Elliott did not view the 18th June proposal as an “actionable bona fide proposal… and it would view any further discussions with Company C as a potential breach of the Original Merger Agreement”.

The filing details how Readerlink made an initial bid on 28th May 2019 at $6.75 a share, dependent on Barnes & Noble’s largest single shareholder and chairman Len Riggio agreeing to roll his equity, but the agreement was not formalised and Riggio was ineligible to take part following the 18th June offer. 

But the Elliott deal is not yet secure. According to the SEC filing, Readerlink “could make a public offer at any time” with the financial support of three sources previously discussed by Readerlink’s financial advisor to Barnes & Noble advisors Evercore. 

The filing also details how 21 companies, including two private equity firms, initially considered evaluating offers with first round bids put in from $6 a share to $8.50 a share.  At least two other offers were made in the formal bidding process, with a “privately held independent retail company” putting in an offer of $6.15 a share.  An offer of $7 a share was made from “a privately held large chain retail company.” Both needed extra time to secure financing. 

Elliott’s initial 15th August 2018 proposal saw the hedge fund suggest it combine Barnes & Noble and Waterstones into a single new entity, with Barnes & Noble shareholders owning 51% of the company “and Elliott contributing $50 million of capital to the combined company in exchange for newly issued common stock.”

In September, Elliott revised its offer to include a partial cash alternative for up to 40% of Barnes & Noble shares at $7.50 per share. By 21st March 2019, with discussions about Waterstones ongoing, the Barnes & Noble board determined they “did not find their alternate proposal of a mix of cash and stock to be an attractive proposal” and was “focused on obtaining the strongest all-cash offer”.

Meanwhile, Kaskela Law has said it will seek to "determine whether Barnes & Noble stockholders (i) are expected to receive adequate consideration for their shares and (ii) have received all material information in connection with the proposed transaction".

Barnes & Noble and Elliott did not wish to comment on the SEC filing. The Bookseller has contacted Readerlink for comment.