Thursday, January 05, 2012
Barnes and Noble: Why Divest the Nook Business?
I'm puzzled today by the news that Barnes and Noble is considering a spin-off of the Nook business. According to CEO William Lynch, “We see substantial value in what we’ve built with our NOOK business in only two years, and we believe it’s the right time to investigate our options to unlock that value." Apparently, he believes that investors are discounting the value of the Nook business because they are so negative on the brick and mortar retail business model. I'm sure that there's some truth there. However, separation of the Nook business leaves, in my view, two unsustainable entities trying to operate on their own. The brick and mortar model is dying, and it will have no future without an online element. On the other hand, Nook will have a hard time competing as an independent entity. It will lose some of those synergies with the stores. Moreover, Amazon and Apple have broader business strategies in which the Kindle and iPad are embedded. Those products benefit from the synergies associated with the entire ecosystem of those firms. It sounds to me as though the firm is trying to use financial engineering to create value, rather than actually trying to identify a viable business strategy for survival.