Barnes & Noble has just climbed on the buyback report. It could go higher.

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Barnes & Noble

The shares could still rise after a 30% rise Thursday to $ 5.95 on a report published in the Wall Street Journal according to which the company is about to acquire Elliot Management.

Investors previously cited by Barron said the company could sell up to $ 7 a share, but that figure now seems high. The paper, citing people close to the case, said the bookseller could sell $ 6.50 per share.

A transaction at one or the other price would depend on the ability of a buyer to revitalize the company, which remains profitable despite continued pressure from
Amazon.com

(ticker: AMZN). Barnes & Noble (BKS) and Elliott did not comment immediately.

Barnes & Noble now accounts for approximately $ 435 million, which represents only 12% of the company's sales for the year ended April 2018. This is a low price / sales ratio for a retailer.
Best buy

(BBY), for example, is valued at around 40% of its annual turnover.

Barnes & Noble is now valued at less than four times its expected profit before interest, taxes, depreciation and amortization of $ 147.5 million for the year ended in April. The company has not yet reported its results for the April quarter; The Ebitda estimate is the midpoint of a range of forecasts issued by the company in March. Most retailers are valued at seven times the annual Ebitda or higher.

And Barnes & Noble has a solid balance sheet with a net debt of around $ 115 million.

"Elliott will get an incredible market if he gets Barnes & Noble," says Rich Schottenfeld, who runs a fund holding 6% of the company's capital on March 31st. "There are a ton of expenses that can be removed from the business. "

According to Schottenfeld, the company, which has 627 outlets, has considerable untapped potential given what it has called a "square city" atmosphere in its underused department stores. He can benefit by organizing more events, such as reading clubs and children's birthdays, or by using his stores as showrooms for online retailers, he says.

He also noted an opportunity to make more money from coffee shops in most of his stores. Schottenfeld argued in a filing that the stores were "significantly undervalued compared to recent transactions in the cafe".

Barron wrote favorably on the company in October 2018, when management announced its intention to evaluate "strategic alternatives". The title was then trading at nearly $ 7. Since then, investors are wary of more and more physical retailers.

Elliott was perceived as a logical buyer of Barnes & Noble, who last year bought the British bookseller Waterstones for about $ 280 million. This deal was more expensive than any likely transaction for Barnes & Noble; Elliott paid about 50% of Waterstones sales.

With shares trading above $ 18 in 2015, a sale to Elliott would be a disappointing conclusion for long-time shareholders. This would likely end the involvement of founder and president Len Riggio, 78, in society.

The biggest mistake the company made in the last decade was getting into e-reading with the Nook, which attacked the Kindle. Barnes & Noble lost more than a billion dollars on Nook, a sizeable sum for a company of this size.

Without the Nook disaster, the company would have had more money to invest in its stores. If the funds had worked that way, the stock would probably be much higher now.

Write to Andrew Bary at [email protected]