Microsoft, Barnes & Noble ink $300m deal
Microsoft will invest $300 million in a new Barnes & Noble subsidiary called Newco, giving it a 17.6 per cent equity stake in the company. The Nook digital bookstore will be bundled with Windows 8.
Barnes & Noble, which assumed a US$1.7 billion valuation on the subsidiary, will retain 82.4 per cent ownership.
Newco will combine Barnes & Noble's digital and college businesses, meaning that the retailer's Nook operations and its Nook Study software for students and educators will be a part of the undertaking.
As part of this deal, Barnes & Noble will include its Nook digital bookstore with Windows 8, the next generation of Microsoft's operating system, which launches later this year. In addition, the companies have settled all of their patent litigation related to use of Android on the Nook tablet, and have formed a "royalty-bearing licence under Microsoft's patents for its Nook e-reader and Tablet products".
The partnership between Microsoft and Barnes & Noble is a rather surprising one. For over a year, the companies have been battling in the courts, with the software giant accusing Barnes & Noble of patent infringement. Barnes & Noble has responded with venom, saying that Microsoft was misusing patent law for its gain, and last year went as far as asking the US Department of Justice to investigate the Windows maker.
"Microsoft is attempting to raise its rivals' costs in order to drive out competition and deter innovation in mobile devices," Barnes & Noble lawyer Peter T Barbur wrote in a 17 October letter to Gene I Kimmelman, the chief counsel for competition policy in the US Department of Justice's antitrust division. "Microsoft's conduct poses serious antitrust concerns, and warrants further exploration by the Department of Justice."
Barnes & Noble is among a host of companies that have been targeted by Microsoft for their use of Android. The software company argues that Android violates patents it holds, and has inked a slew of licensing deals with vendors. Barnes & Noble had been one of the few companies attempting to battle it out.
Although the Microsoft-Barnes & Noble deal is surprising, the bookseller's decision to spin off its Nook unit isn't. Back in January, the company released a statement saying that it was exploring the possibility of spinning off the operation so it could "unlock" the value of the Nook unit. In this statement, Barnes & Noble said that Newco is still a work in progress, adding that it can provide "no assurance that the review will result in a strategic separation or the creation of a standalone public company".
The announcement also marks the first time that Barnes & Noble has openly talked about going global, although it remains unclear when it will bring its Nook devices to overseas markets. In a conference call, CEO William Lynch said that few companies are "on more screens than Microsoft", and that the new partnership will allow Barnes & Noble to extend the Nook digital bookstore to thousands of users in the US and globally. Amazon is also making a big push into global markets, and Apple, of course, is already selling millions of iPhones and iPads around the world.
David Carnoy contributed to this article.