UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
SCHEDULE 14A INFORMATION
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Barnes & Noble, Inc.
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 Investor
Investor
Presentation
Presentation
September, 2010
September, 2010 |
| 2
Important Information and Certain Information Regarding Participants
On August 25, 2010, Barnes & Noble, Inc. (“Barnes & Noble”) filed with the
Securities and Exchange Commission (the “SEC”) a definitive proxy statement in
connection with its 2010 Annual Meeting and has mailed the definitive proxy statement to its stockholders. The definitive proxy statement contains
information regarding the names, affiliations and interests of Barnes & Noble’s
directors, director nominees and certain of its officers that may be deemed, along with
Barnes & Noble, to be participants in the solicitation of Barnes & Noble’s stockholders in connection with its 2010 Annual Meeting.
Security holders are urged to read the definitive proxy statement and any other relevant
documents filed with the SEC when they become statement and other documents (when available) that Barnes & Noble files with the SEC at
the SEC’s website at www.sec.gov, at Barnes & Noble’s website at
www.barnesandnobleinc.com and from Barnes & Noble by directing a request to Barnes & Noble, Inc., Attention: Investor Relations, 122 Fifth Avenue,
New York, New York 10011.
Safe Harbor
This communication contains “forward-looking statements.” Barnes & Noble is
including this statement for the express purpose of availing itself of the protections
of the safe harbor provided by the Private Securities Litigation Reform Act of 1995 with respect to all such forward-looking statements. When
used in this communication, the words “anticipate,” “believe,”
“estimate,” “expect,” “intend,” “plan,” “will, “projection” and similar expressions, as they
relate to Barnes & Noble or the management or Board of Directors of Barnes & Noble,
identify forward-looking statements. These forward-looking statements are
based on currently available information and represent the beliefs of the management of the company. These statements are subject to
risks and uncertainties that could cause actual results to differ materially. These risks
include, but are not limited to, general economic and market conditions, decreased
consumer demand for the company’s products, possible disruptions in the company’s computer systems, telephone systems or
supply chain, possible risks associated with data privacy and information security, possible
work stoppages or increases in labor costs, possible increases in shipping rates or
interruptions in shipping service, effects of competition, possible disruptions or delays in the opening of new stores or the inability to
obtain suitable sites for new stores, higher than anticipated store closing or relocation
costs, higher interest rates, the performance of the company’s online, digital and
other initiatives, the performance and successful integration of acquired businesses, the success of the company’s strategic
investments, unanticipated increases in merchandise, component or occupancy costs,
unanticipated adverse litigation results or effects, the results or effects of any
governmental review of the company’s stock option practices, product and component shortages, effects of the company’s evaluation of
strategic alternatives and other factors which may be outside of the company’s control.
Please refer to the company’s annual, quarterly and periodic reports on file with
the SEC for a more detailed discussion of these and other risks that could cause results to differ materially. The company assumes no
obligation to update or revise any forward-looking statements.
This communication includes projected financial performance information from Barnes &
Noble’s 2011 financial plan. These projections are necessarily based upon a
variety of estimates and assumptions which, through currently considered reasonable by Barnes & Noble, may not be realized and are
inherently subject, in addition to the specific risks identified above, to business, economic,
competitive, industry, market and financial uncertainties and contingencies, many of
which are beyond Barnes & Noble’s control. There can be no assurance that the assumptions made in preparing the projected
financial performance information will prove accurate. Accordingly, actual results may differ
materially from the results projected. available,
because
they
contain
(or
will
contain)
important
information.
Security
holders
may
obtain
a
free
copy
of the definitive proxy |
 Why You Should
Support Barnes & Noble We're here to ask you to support the Barnes & Noble Board
of Directors highly qualified Director nominees and to reject Yucaipa's proposed
resolution and Board slate. Our
argument
for
supporting
the
Company
and
slate
of
nominees
is
six
fold:
1)
The book industry is undergoing dramatic transformation. We have the
management team and strategy to capitalize on that transformation.
2)
Mr. Burkle
and his proposed slate have no demonstrated vision and do not have
the requisite competencies to help guide the Company.
3)
Mr. Burkle
has a history
of taking control of companies without paying
shareholders a premium.
4) The
Delaware
court
rejected
all
of
Mr.
Burkle’s
claims
regarding
the
Company’s
Shareholder Rights Plan. In fact, the Company’s Shareholder Rights Plan is doing
exactly
what
the
Delaware
courts
say
Rights
Plans
are
designed
to
do
-
prevent
“creeping
acquisitions”
and
ensure
that
nobody
acquires
control
of
a
company
without paying an appropriate premium.
5) Moreover, Mr. Burkle
has clouded the discussion with false accusations about the
management team that need to be disputed.
His inflammatory arguments aren't
predicated on fact.
6) The Company's proposed slate provides competency, independence, and vision.
3 |
 The Bookselling
Industry is Transforming 4 |
 We Are Confident
Today’s Investments in Our Strategy Will Lead to Significant Value Creation for
Shareholders 5
$ in millions
$281
$235 -
$275
> $500
Total Comparable Sales
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
$10,000
2010
2011P
2014P
$8,900
$7,100
$5,810
EBITDA
$0
$100
$200
$300
$400
$500
$600
2010
2011P
2014P |
 Barnes & Noble
– The World’s Largest Bookseller
Barnes & Noble is a leading retailer in large multi-billion dollar markets.
The
company
has
approximately
18%
market
share
of
the
$23
billion
consumer
book
industry
and
15%
share
of
the
$12
billion
collegiate
book
market.
Additionally,
Barnes
&
Noble
is
the
#2
retailer
in
the
$22
billion
Newsstand
(single
copy)
market.
The
company
believes
that
digital
content
will
grow
all
of
these
markets
and
offers
incremental
business
opportunities for the company.
The company operates:
-
717 consumer bookstores in 50 states
-
633 college bookstores serving nearly 4 million students and faculty members
-
One
of
the
Web’s
largest
eCommerce
sites
and
eBookstores
Given the dynamic nature of the book industry, the challenges faced by traditional
booksellers, and the robust innovation pipeline fueling new opportunities in hardware,
software and content creation and delivery, Barnes & Noble is utilizing the strength of
its retail footprint
to
bolster
its
leadership
and
fuel
sales
growth
across
multiple
channels.
1) Bowker, 2009 Book Consumer Annual Review
2)
Market Share derived from National Association of College Store data
3)
Veronis
Suhler
Stevenson, Communication Industry Forecast 2010-2014
6
2
2
1
3 |
 The Bookselling
Industry is Transforming 7
Consumer spending on new physical books
is expected to decline from $20.5 billion in
2009 to $19 billion in 2014
Spending on digital books is expected to
grow at a CAGR of 56.4%, from $365
million in 2009 to $3.4 billion in 2014
eCommerce
and digital book sales are
expected to grow, while books sold at
bookstores will continue to decline
Barnes & Noble is pursuing strategies to
gain share in all three channels:
eCommerce, digital and bookstore sales
Source: Veronis
Suhler
Stevenson, Communication Industry Forecast 2010-2014
($ in millions)
CAGR
2009
2014
2009 -
2014
New Books
$20,536
$19,049
(1.5%)
Used Books
1,368
1,881
6.6%
Audio
412
350
(3.2%)
Digital
365
3,419
56.4%
Total
$22,681
$24,699
1.7% |
 Well Positioned to
Gain Physical Book Market Share 8
2013P BKS Market Share*
2013P BKS Market Share*
2010 BKS Market Share*
2010 BKS Market Share*
*Source: Bowker
2009 Book Consumer Annual Review and Veronis
Suhler
Stevenson,
Communications Industry Forecast 2010-2014
and Company forecasts
B&N is by far the strongest bookstore
operator in the segment, having
consistently outperformed the competition
B&N has consistently gained bookstore
market share against the competition
Approximately 50% of books are sold at
non-bookstore outlets; and as book sales
continue to progress towards eBooks and
books sold online, we believe these non-
bookstore outlets will reduce their
presence, if not eliminate their book
departments altogether
B&N believes there will be industry
consolidation in the form of fewer
bookstores and bookstore chains and that
the company will be the beneficiary of that
consolidation |
 Superior Bookstore Execution Has Led to Market Share Gains
9
Source: Public Filings
Source: Public Filings |
 10
Transformative Digital Strategy Leads to Further Market Share Gains
B&N believes the eBook market will
be significantly less fragmented than
the physical book market.
Within 12 months of the launch of its
eBookstore, the company had 20%
market share and established itself as
the #2 player in this category.
There are significant barriers to entry,
including capital investments in
developing technology and
converting/amassing digital content,
that B&N believes will discourage
mass merchandisers from entering
the marketplace.
June
2009
June
2010
20%
20%
Barnes & Noble’s eBooks Market Share
They are the best-kept secret in the e-book space.
“
”
-
David Shanks, CEO Penguin Group,
Crain’s New York,
June 13, 2010 |
 B&N’s
Multi-Faceted Digital Approach
11
Created
the
most
advanced
eReaders
in
the
marketplace
Multi-channel/Multi-reach strategy
differentiates Barnes & Noble from anyone
else in this space
Apps allow for support for over 400 devices
Established partnerships with Best Buy
(NOOK fixtures in 1,070 Best Buy stores
and featured on bestbuy.com) and HP
(cobranded website and desktop app) to
expand NOOK’s
presence |
 Digital
Strategies are Driving Big Sales Increases 12
On a comparable sales basis
The
launch
of
the
eBookstore
served
as
a catalyst for comparable sales
increases at BN.com
and that has
further accelerated with the launch of
NOOK –
the company expects fiscal
2011 comparable sales to increase 75%.
Members who have purchased a NOOK
have increased their digital and physical
spend by approximately 20% and on a
unit basis by 70%.
Additionally, NOOK devices and our
eReading
software has triggered a
significant expansion of the BN.com
customer base –
25% of NOOK users
are new to BN.com.
Launched
eBookstore
4%
2%
-10%
-7%
9%
32%
50%
53%
75%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
2% |
 Bookstores are
Driving NOOK Sales… The company reaches over 40 million
customers and is leveraging its leading
market position to educate its customers
about its digital products offerings. Simply
put, Barnes & Noble Bookstores attract the
core NOOK customer.
Bookstores provide a distinct see, feel,
touch advantage for customers to be able to
experience NOOK.
The company’s 45,000 booksellers are
ambassadors for its digital products
offerings.
The bookstores have played such an
important
component
of
NOOK’s
success
that B&N is expanding its commitment and
resources to its digital strategy through the
roll-out of NOOK Boutiques.
13
Point of Purchase
(Mid-Feb. Bookstore Launch)
0%
20%
40%
60%
80%
100%
Dec
Jan
Feb
March
April
May
June
July
Aug
Bookstores
Online |
 And, Digital
Programs Are Driving Traffic Back To The Bookstores The company is also using NOOK to
drive traffic back to the bookstores after
customers purchase the device through
innovative features such as:
–
Read In Store™, where customers can
browse and read complete eBooks for
free while they are in a Barnes &
Noble bookstore
–
More In Store™, which provides free
exclusive content from top authors
only in our bookstores for NOOK
users
–
Additional promotions such as free
eBook offers for bookstore customers
and free coffee offers to those who
show our eReader
software on their
devices.
14 |
 Transforming the
Bookstore Experience 15
As B&N reduces the amount of space
dedicated to shrinking categories such as
music, it intends to leverage its brand and
locations by selling additional
complementary products.
The company is in the process of rolling out
its Toys & Games department, which is
curated
with a unique selection of
educational toys and games and an
expansion of adult games and puzzles.
The introduction of educational toys and
games along with the expansion of adult
games and puzzles is expected to increase
department sales by more than 60% in
fiscal 2011 (on an annualized basis).
The company is also building on its stellar
reputation with educators and parents
through its B&N @ School departments,
further establishing Barnes & Noble as an
education destination. |
 Accelerating
eCommerce Sales
B&N’s
investments in its digital
platform, combined with recently
introduced new strategies, such as
every day low pricing and free
unlimited express shipping for
Members are translating into strong
business momentum and accelerated
revenue growth.
The company intends to capitalize on
these accelerating trends by adding
new categories and significantly
expanding the number of SKUs at
BN.com.
B&N has significantly expanded its
used
and
new
Marketplace
–
its
direct
seller network now has over 60 million
listings
of
new
and
used
products
–
up
50% from two years ago.
16
On a comparable sales basis
BN.com
Comparable Sales
9%
32%
50%
53%
75%
0%
10%
20%
30%
40%
50%
60%
70%
80% |
 Transforming the
Campus Bookstore Barnes & Noble is utilizing the strength of its digital
platform and is at the forefront of transforming the
college bookstore industry. The company offers college
students and faculty the most comprehensive textbook
offering in the marketplace. Since the College
Booksellers acquisition, the company has significantly
increased the amount of options available for students to
acquire their required course materials. Barnes & Noble
is the first and only major online retailer offering higher
education students four textbook options -
new, used,
rental and digital.
The company is also revolutionizing the way students
study through the release of NOOKstudy™, an integrated
software solution for the higher education market. This
feature rich, free software application is the ultimate
study tool, enabling students to manage all their digital
content –
eTextbooks, class materials, and notes –
on
their PC or Mac. This software enables students to “study
smarter, not harder.”
B&N intends to gain further market share in the
collegiate market as more and more schools look for a
partner to outsource their campus bookstore
management.
17 |
 Digital Strategy
Transforms Barnes & Noble into a Technology and Growth Company
18
2010 Includes College results since acquisition date
$ in millions
69%
Retail
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
2010
2011P
2012P
2013P
2014P
Booksellers
College
bn.com |
 BKS’s
Stock Performance Reflects Decline of
Traditional Retail Bookselling
Ron Burkle’s
Ron Burkle’s
attempt to blame BKS’s
attempt to blame BKS’s
stock performance
stock performance
on related party transactions is misleading
on related party transactions is misleading
19 |
 Analysts
Recognize Potential in eBooks “Barnes & Noble’s digital strategy has
begun to pay off, with a 50% increase in ecommerce sales in 4Q10 and a forecasted 75%
increase in fiscal 2011.” (Bank of
America/Merrill Lynch, June 30, 2010)
“The firm’s 20% market share of digital books (newly disclosed) is impressive, and
some
of
this
investment
–
most
notably
the
digitization
of
back-list
books
–
will
likely peak in the next year or two.”
(Goldman Sachs, June 30, 2010)
“BKS sees the business moving to e-books. BKS has two great competitive strengths
in our view (1) long-standing relationships with publishers that give it a big
seat at the e-book table and (b) best in class real estate that can somewhat
offset BKS from the constant struggles in book demand through gains in market
share.” (Stifel
Nicolaus, June 30, 2010)
“We have no doubt that BKS has a winning management team, great brand, great
real estate portfolio and substantial competitive advantages with a weakened
primary sector competitor in Borders.”
(Stifel
Nicolaus, May 21, 2009)
“The migration to digital distribution may open up new opportunities for
BKS.” (C.L.
King, August 4, 2010)
20 |
 An Independent
Special Committee is Reviewing Strategic Alternatives to
Maximize Shareholder Value
21 |
 Review of
Strategic Alternatives We believe the market is undervaluing the digital opportunity for
B&N On August 3, 2010, Barnes & Noble announced that its Board had formed a
Special Committee to review strategic alternatives
The Special Committee consists of four independent board members
The Special Committee is being assisted by top independent financial and legal
advisors (Lazard and Morris, Nichols)
Alternatives include soliciting offers for a potential sale of the Company
22
A
A
Process
Process
is
is
Underway
Underway
to
to
Deliver
Deliver
Full
Full
Value
Value
to
to
ALL
ALL
Shareholders
Shareholders |
 Review of
Strategic Alternatives The
Delaware
Chancery
Court
rejected
Ron
Burkle’s
argument
that
the
Special Committee lacks independence
–
“The strategic process is to be led by a special committee of four of the
company’s independent directors, a group that does not include any director
this decision has found to be non-independent.”
(p. 86)
Mr. Burkle
can participate in sale process: if he wants control, he can
make an offer to all
shareholders
Instead, Burkle
seeks two
representatives on the Special Committee
–
Len Riggio
has no
representation on the Special Committee
The Board believes Mr. Burkle
is trying to influence the Special
Committee process to advance his
own interests
Weakening the Rights Plan While the Board Reviews Strategic
Weakening the Rights Plan While the Board Reviews Strategic
Alternatives Could Deny Shareholders a Control Premium
Alternatives Could Deny Shareholders a Control Premium
23 |
 The
Company’s Related Party Transactions Support The Business
24 |
 25
Overview of Related Party Transactions
Related
party
transaction
preceded
BKS's
IPO
in
1993
–
when
all
companies
(B&N, B&N College, MBS) were privately owned
All have been disclosed in SEC filings since IPO
Independent Audit Committee reviews all related party transactions both
when they occur and again each year
Company analyzes all related party transactions, both when they occur and
again each year, to ensure the terms are at least as favorable to the Company
as comparable, arms-length transactions available in the market
Board also forms independent special committees as appropriate (e.g.,
acquisition of Babbages, B&N College) |
 26
History of Related Party Transactions and the Barnes & Noble Brand
1965: B&N College founded by Len Riggio
1986: B&N College acquired B. Dalton Bookseller (754 stores) jointly with Vendex
–
B&N
College
and
Barnes
&
Noble
were
kept
as
two
separate
private
companies
to
provide
Vendex
with
50% ownership of Barnes & Noble without the well-established College business
•
B&N College focused on sale of textbooks
•
Barnes & Noble focused on sale of trade books
–
Related party transactions were established to share certain resources between the two
companies 1993: IPO of Barnes & Noble after successful development of the superstore
concept –
B&N
College
remained
the
owner
of
the
“Barnes
&
Noble”
name
but
granted
the
right
to
BKS
to
use
it
in
perpetuity for trade books under a royalty-free license agreement
1998:
B&N
College
granted
Barnes
&
Noble.com
the
exclusive
license
to
the
“Barnes
&
Noble”
name and trademark from for the purpose of online sale of trade books (excluding
textbooks) 2001:
B&N
College
granted
Barnes
&
Noble.com
the
right
to
sell
college
textbooks
online
for
royalty payments on such sales
2009: Barnes & Noble’s acquisition of B&N College represents the logical
reunification of the Barnes & Noble brand to enable the Company’s digital
transformation |
 27
GameStop –
Value Creation for Barnes & Noble Shareholders
Acquired Babbage's ($209m) from Len Riggio
in
1999 and publicly traded Funco
($159m) in 2000
and consolidated them under GameStop brand
Babbage's acquisition negotiated by
independent special committee
Expanded GME to become nation’s largest video
game and PC entertainment software specialty
retailer
2002 GME IPO yielded $250m in cash plus a 63%
interest in GME for Barnes & Noble
2004 Barnes & Noble sold additional shares back
to GME for ~ $112m in proceeds
In subsequent 2004 GME Spin-off, the company
distributed remaining GME shares to Barnes &
Noble shareholders, which achieved a peak
value of $3.8 Bn*
Company itself recouped full original investment
through IPO proceeds and 2004 share sale
GameStop Investment Return
($MM)
Funco
GME IPO Proceeds
GME Shares Sold
Babbage's
GME Peak Value
*GameStop
shares
reached
a
peak
value
of
$63.30
in
December
2007,
which
equates
to
a
market
value
of
nearly
$3.8
billion
for
the
59.8
million
s
hares
(adjusted for a 2 for 1 stock split in March 2007) spun off to Barnes & Noble
shareholders in 2004. The closing price of GameStop shares as of September
8, 2010 was $18.57, which equates to a market value of $1.1 billion for the
59.8 million shares. |
 College
Transaction: Reunited Brand and Supports Digital Transformation
College owned Barnes & Noble trade name; reuniting the
brand and reintegrating businesses was a top priority of
the Board for many years
By reuniting the brand and owning College, BKS has been
able to:
–
Integrate its Internet and digital products into a
single, comprehensive brand and marketing offering
–
Become the only major online retailer offering
textbooks
in
every
format
–
new,
used,
rental
and
digital –
making BKS highly relevant to college
students
–
Make BKS the clear partner of choice for colleges and
universities that need to modernize their offerings
–
Launch NOOKstudy™, a feature-rich digital textbook
and study tool that lets college students manage all
their digital content on a PC or Mac
–
Build relationships with the key college demographic
group
–
More effectively transition those relationships into
lifetime BKS customers
28 |
 29
College Transaction: Attractive
Financial Terms Support Digital Strategy
Independent special committee and independent financial and legal advisors
reviewed and negotiated the transaction to ensure fairness to all shareholders
$514 million purchase price includes $75 million of cash College
had at closing
Purchase price of only $439 million (net of cash) equates to only 3.8x adjusted
EBITDA (pro forma for Fiscal Year 2010)*
College continues to be a healthy and profitable business
–
Positive 2.9% comp store sales increase in latest quarter
–
Expected to generate $65MM in cash from operations this fiscal year
College is a significant source of funding for the Company’s investments aimed at
growing digital sales
*In the twelve months ended April 30, 2010, College had operating profit of
approximately $49 million and generated adjusted EBITDA of $117 million on a pro
forma basis. A reconciliation of adjusted EBITDA to operating profit is
included in the Appendix. |
 30
MBS Supply Agreement is Key
Competitive Advantage for College
College has long-term Supply Agreement with MBS Textbook Exchange, Inc. (“MBS”),
a leading U.S. wholesaler of new and used textbooks (majority owned by Len
Riggio) –
College purchases new and used printed textbooks from MBS prior to buying from other
suppliers ($24MM since the acquisition date in 2010)
–
College sells used textbooks (bought back from students) exclusively to MBS
Agreement re-negotiated by independent special committee in College acquisition
Access to supply of used textbooks from market leading wholesaler is key
competitive advantage for College and nearly impossible to replicate
–
Other major textbook retailers (Follett, Nebraska) have integrated wholesale operations
Separately, MBS sells used books through B&N.com; B&N.com
receives same
commissions from MBS as from other dealers in its dealer network
($3MM in 2010) |
 Ronald
Burkle is Cherry-Picking Analyst
Comments on The College Transaction
Burkle
claims on slide 18 of his presentation that Bank of America/Merrill Lynch
criticized the acquisition of College Booksellers, but here is what they said:
–
“... [W]e
view the transaction favorably as it provides the company with an alternate
avenue for growth”
(14 August 2009)
–
“Recall the college book market is estimated at $10 billion, and 65% of colleges
bookstores (2,000+ colleges) are still operated by the schools themselves. As such, we
believe BKS will look to grow this newly acquired channel.”
(8 October 2009)
Stifel
Nicolaus
also noted the favorable transaction terms and that investor
skepticism was overdone:
–
“BKS
bought
College
with
cheap
money
relative
to
the
cash
flows
of
the
business”
(10
August
2009)
–
“We believe the skepticism [regarding the transaction] may be getting overdone. College
bookstores may indeed have more resilience to e-books (you can’t take notes in
the margin as easily on an e-book or mobile phone).”
(20 August 2009)
31 |
 We Believe
Ronald Burkle’s Self-Serving
Agenda is not in the Best Interest of
Barnes & Noble Shareholders
32 |
 Why You Should
Reject Yucaipa’s Nominees Ronald Burkle
has a history of taking control of companies without paying shareholders a
premium –
many with highly negative consequences
We believe Mr. Burkle’s
actions are part of his ongoing effort to gain control of Barnes & Noble
–
Yucaipa and Aletheia
together control 34% of outstanding shares
–
Yucaipa and Aletheia
have a history of following each other in making investments
–
In
response
to
the
company’s
Rights
Plan,
Burkle
sued
in
the
Chancery
court
in
Delaware
–
The court held for the company on every issue
–
The court said the Board’s “adoption and use of the Rights Plan was a good faith,
reasonable response
to
a
threat
to
Barnes
&
Noble
and
its
stockholders”
(Opinion,
pg.
87)
The Shareholder Rights Plan is more important now than ever
–
A special committee of independent Directors is reviewing strategic alternatives to maximize
shareholder value
–
The Rights Plan must continue in its current form in order to protect this process
–
A
special
meeting
of
shareholders
will
be
held
on
or
before
Nov.
17
to
ratify
the
Rights
Plan
If the Board’s nominees are elected, 7 of the 9 directors would be independent
directors Ron
Burkle’s
slate
proposes
two
“independent
Directors”
who
are
now
on
his
payroll
Burkle
has offered no strategy or plan to create shareholder value
33
th |
 Burkle
and Aletheia
–
A Clear Pattern Emerges
34
Barnes & Noble Ownership Percentage
3/31/2008
6/30/2008
9/30/2008
12/31/2008
3/31/2009
6/30/2009
9/30/2009
12/31/2009
3/31/2010
6/30/2010
Aletheia
0.4%
0.4%
0.6%
0.4%
5.7%
4.7%
4.8%
13.1%
17.1%
15.7%
Yucaipa
n/a
n/a
n/a
8.3%
8.3%
8.0%
8.0%
17.8%
18.7%
19.6% |
 Mr.
Burkle
Claims
That
He
“Barely
Knows”
Aletheia
–
But
Look at the Remarkable Pattern of Their Investments
Yucaipa Total Position
Aletheia Total Position
A&P: Yucaipa Total Position (Includes Warrants and Preferred Convertible)
35
Barnes & Noble
Whole Foods Market
A&P (The Great Atlantic and Pacific Tea Company)
Wild Oats Markets
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
2/26/2005
8/27/2005
2/25/2006
8/26/2006
2/24/2007
8/27/200
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
3/31/2008
9/04/2008
2/08/2009
7/15/2009
12/19/2009
5/21/2010
0
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
35,000,000
12/03/2007
5/24/2008
11/13/2008
5/05/2009
10/25/2009
4/16/2010
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
6/30/2008
11/05/2008
3/13/2009
7/19/2009
11/24/2009
3/31/2010
2/1/07:
Whole Foods announces
offer to acquire Wild Oats
Favorable Investment Timing? |
 Shareholders
Should Not Let Burkle Increase His Ownership
He Has Proven to Serve His Own
Interests Time and Time Again
As the Delaware Chancery Court found:
“Despite its protestations, Yucaipa’s prior investing history is replete
with
the
sorts
of
investments
that
often
lead
to
transactions
in
which
public
stockholders
are
treated
differently.
Although
Yucaipa
seems
to
have
mostly
entered
on
friendly
terms,
the
terms
it
extracted
have
often given it control rights not available more generally to
stockholders and its influence has resulted in important managerial
changes.”
(p. 68) (emphasis added)
36 |
 Company
Issue
Comments
Aletheia
Follows
Investment by
Yucaipa
No Shareholder Rights Plan was in place to protect shareholders and
Yucaipa and Aletheia
together now control approximately 45% of A&P on a
fully diluted basis.
Preferential
Treatment
Right to designate 2 directors; in addition former Yucaipa appointee to
Pathmark board has been A&P director since Pathmark was acquired
Yucaipa approval required for certain business combinations exceeding $50
million, certain issuances of equity securities and amendments to articles of
incorporation and by-laws
The
approval
of
at
least
one
Yucaipa
nominated
director
required
for
certain
acquisitions and dispositions of assets exceeding $50 million, certain
issuances or repurchases of equity securities, incurrence of debt exceeding
$50 million and declaration of any dividends on common stock
The terms of Yucaipa’s Pathmark warrants were amended to permit
exchange of the warrants for A&P warrants. A&P warrants received by
Yucaipa enable Yucaipa to have greater participation in any upside than
A&P’s
other stockholders
Yucaipa nominated director named Chief Administrative Officer; President
and CEO, EVP of Operations and SVP of Human Resources and
Communications also have Yucaipa ties
Payments to
Yucaipa;
Shareholders
Suffer
Four consulting agreements for Yucaipa employees each worth
$500,000/year
Share price decline of 40% since Yucaipa nominated directors were added
to the Board
Shareholders
Should
Think
Twice
Before
Allowing
Burkle
to
Increase
His
Ownership
He Has Proven to Serve His Own
Interests Time and Time Again
37 |
 Company
Issue
Comments
Creeping
Control
While
owning
less
than
a
majority
of
Source,
Mr.
Burkle
took
control
of
board
by
reducing
board
size
so
that
Burkle’s
designees
constituted
a
majority
and
by naming Yucaipa partner as Chairman
Treatment of
Minority
Shareholders
Ignored long-time shareholder’s requests to
“do
what’s right for all
shareholders and not just [what is] in Yucaipa’s self
interest”
Postponed annual meeting to keep shareholder proposal (relating to
declaration
of
special
dividend
to
return
value
to
shareholders)
out
of
proxy
materials
Poor Strategic
Decision
Review of strategic alternatives led by Yucaipa resulted in acquisition of
Primedia
for $1.2 B in 2007, which left company overlevered
Payments to
Yucaipa
Yucaipa entered into a $1 million per year consulting arrangement with
Source in 2005
Source paid Yucaipa an additional $12.8 million for special consulting services
in connection with Source’s review of strategic alternatives
Bankruptcy
Source filed for bankruptcy protection in April 2009, citing a heavy debt load
38
Shareholders
Should
Think
Twice
Before
Allowing
Burkle
to
Increase
His
Ownership
He Has Proven to Serve His Own
Interests Time and Time Again |
 Company
Issue
Comments
Burkle
Acquires Stake
Mr.
Burkle
acquired
a
22%
stake
in
Simon
Worldwide
(fka
Cyrk)
via
warrants
and convertible preferred shares
and received 3 of 7 Board seats (Burkle
chairman)
Scandal
Scandal
over
administration
of
McDonalds’
game
competitions
leads
to
loss
of major customers, lawsuits
Stock delisting due to insufficient assets and equity
Resignation of Burkle
as Chairman
Payments to
Yucaipa
Management consulting contract of $500,000/year and 1% of purchase
price of any acquisition/divestiture in which Yucaipa consulted
Sale or
Liquidation
Subsequent
to
a
recapitalization
giving
Mr.
Burkle
a
70%
stake,
stockholders
decided
to
either
sell
or
liquidate
the
company
by
end
of
2010
39
Shareholders
Should
Think
Twice
Before
Allowing
Burkle
to
Increase
His
Ownership
He Has Proven to Serve His Own
Interests Time and Time Again |
 Company
Issue
Comments
Burkle
Reportedly
Gains Influence
Ron Burkle
made investments in Kmart (11/2000) and Fleming Companies
(2/2001)
In same month Mr. Burkle
made his investment in Fleming, Kmart, as a part
of a superstore initiative that was reportedly encouraged by Burkle, entered
a 10-year $4.5Bn food supply agreement with Fleming
Burkle
Profits
but Companies
File for
Bankruptcy
Burkle
sold Fleming investment 10 months later (12/2001) with a $25
million
profit
(based on press estimates)
A
month
later
(1/2002),
Kmart
filed
for
bankruptcy;
Burkle
claims
to
have
purchased downside protection on Kmart stock
Fleming filed for bankruptcy in 4/2003
40
Shareholders
Should
Think
Twice
Before
Allowing
Burkle
to
Increase
His
Ownership
He Has Proven to Serve His Own
Interests Time and Time Again |
 In Our View The
Record Is Clear: Ron Burkle Pursues
His Own Interests –
NOT That of All Shareholders
41
Mr. Burkle’s
40+ page investor presentation lacks a single positive
idea, plan or strategy for BKS
The
BKS
Board
believes
Burkle’s
nominees
have
no
vision,
no
strategy
and
no
relevant
experience
to
build
value
at
Barnes
&
Noble
Burkle
has a history of investments characterized by
–
Creeping control without paying a premium
to all shareholders
–
Preferential
treatment
of
Yucaipa
–
Corporate governance failures
The
Board
is
convinced
Ron
Burkle
and
Aletheia
are
trying
to
gain
control
without paying a premium to all shareholders¹
–
Rights Plan with 20% trigger prevents Burkle/Aletheia
control group
1) While Yucaipa’s nominees, if elected would constitute a minority of the Board, the Board
believes Yucaipa’s proposal to elect its nominees, together with its efforts to weaken the
Rights Plan, are part of a larger plan to obtain control of the company. |
 We Believe the
Current Rights Plan is Necessary to Keep Burkle
and Aletheia
from
Gaining Control Without Paying a Premium
42 |
 Barnes &
Noble Shareholder Rights Plan Adopted November 17, 2009 with a three-year term
20% triggering threshold
Leonard Riggio frozen at pre-existing ownership level of approximately 30%,
which includes options
Barnes & Noble publicly committed to put the Rights Plan to a shareholder
vote by November 17, 2010
Mr. Burkle sued in the Delaware Chancery Court to challenge the Rights Plan
Vice Chancellor Leo Strine upheld the Rights Plan following a trial on the merits
in July 2010; Burkle has appealed
43 |
 Rights Plan
Protects Barnes & Noble Shareholders against the Formation of a Control Bloc
Mr.
Burkle
claims
he
wants
to
level
the
playing
field,
but
his
proposal
to
increase
the ownership threshold to 30% would allow formation of an absolute control
bloc –
Burkle
and Aletheia
already own 34%
Among
other
things,
this
control
bloc
would
give
Burkle
and
Aletheia
–
Ability to block outcome of the strategic alternatives process
–
Power to deny Barnes & Noble shareholders a control premium for their shares
As the Court stated: “[T]he
board was concerned that Yucaipa could, along with
Aletheia
as
an
admiring
and
devoted
fellow
traveler,
essentially
form
a
control
bloc without paying a control premium. Wielding effective voting control,
Yucaipa and Aletheia
could then propose options, such as a leveraged buyout in
which they remained as controlling stockholders, that might be less attractive to
the company’s other stockholders than would either the status quo or the sale
of the company in an open shopping process. Contrary to Yucaipa’s view, I do
not believe that this concern is at all unreasonable.”
(p. 71)
44 |
 What Did the
Court Say about Yucaipa and Aletheia? 45
What
did
the
Court
say
about
Yucaipa
and
Aletheia’s
discussions
about
Barnes &
Noble?
–
“The
evidence
at
trial
also
showed
that
Eichler
and
Burkle
had
met
for
lunch
in
both
August
2009
and
January
2010,
although
Burkle
disclaims
having
had
any
serious
discussions
about
Barnes
&
Noble.
Notably,
however,
their
initial
meeting
on
August
14,
2009
was
the
same
day
that
Burkle
sent
his
first
letter
to
Riggio
complaining
about
the
College
Booksellers
transaction.
Furthermore,
Eichler
had
a
more
detailed,
and
quite
believable,
recollection
of
the
discussion.”
(p.
24)
–
“That
Burkle
and
Eichler
took
a
meeting
on
the
same
day
that
Burkle
shot
off
his
private
letter
to
Riggio
complaining about the College Booksellers deal, and met again after the Rights Plan was in
place, are events that I, being neither Goober Pyle or Kenneth Parcell, believe were
anything but coincidental and had
everything
to
do
with
Barnes
&
Noble”
(p.
67)
What did the Court say about a Yucaipa and Aletheia
control bloc?
–
“The testimonial record supports the conclusion that the board had good reason to be
concerned that these two large investors were capable of and interested in cooperating
in a joint effort to take effective
voting
control
of
the
company”
(p.
25)
–
“[I]t
is clear that Aletheia’s
Eichler
is a big admirer of Burkle
and that there is a strong possibility for the
immediate
formation
of
a
control
bloc
if
the
Rights
Plan
were
not
in
place”
(p.
73) |
 What Did the
Court Say about the Rights Plan? What did the Court say about the Board’s adoption
of the Rights Plan? –
The Board’s
“adoption
and
use
of
the
Rights
Plan
was
a
good
faith,
reasonable
response
to
a threat to Barnes & Noble and its stockholders”
(p. 87)
–
“In response to this threat that the corporation’s stockholders would relinquish
control through a creeping acquisition without the benefit of receiving a control
premium, the board adopted a measured pill that protected Barnes & Noble
shareholders” (p. 3)
What did the Court say about the Rights Plan’s 20% triggering threshold?
–
"In this respect, it is critical that the board used a 20% trigger rather than a 15% cap.
With the Riggios’
ownership, that threshold was reasonable because setting the threshold any
higher would have only made Yucaipa’s creeping acquisition of control more
likely.”
(p.
84) (emphasis added)
–
“[The Board’s advisor] focused, in my view reasonably, on the notion that a
standard pill with a cap higher than 20% —
such as 25% —
would allow for the formation of a de facto
control bloc between Yucaipa and Aletheia
(or another activist) through conscious
parallelism.“
(p. 85)
46 |
 How
Can You Believe Burkle Does Not
Want Control?
Last
November,
Mr.
Burkle’s
SEC
filings
reserved
the
right
for
Yucaipa
to
acquire all of the Company’s stock and Yucaipa notified the Company that it
had requested U.S. antitrust clearance to do so
This July, he testified in Court that he considered offering to buy the
Company
"Burkle
also
took
meetings
with
two
large
investment
banks,
Bank
of
America and Deutsche Bank, about the possibility of a leveraged buyout of
the company." (Opinion, p. 14)
He recently told New York magazine that he “would certainly
consider a bid” to buy the Company
(“The
Billionaire
and
the
Book
Lover,”
Andrew
Rice,
New
York,
August
30
–
September
6,
2010,
p.
40)
Ronald Burkle
has spent millions in legal fees on litigation to invalidate or
weaken
the
Rights
Plan
in
order
to
be
able
to
acquire
additional
BKS
shares
47 |
 Highly
Qualified Slate With Two New Independent Nominees
48 |
 Highly Qualified Slate with Two New Independent Nominees
49
Leonard Riggio
Visionary Founder, Chairman and former CEO of Barnes & Noble with 45+ years
of entrepreneurial, executive and board-level experience
Mr.
Riggio
has
led
Barnes
&
Noble
to
become
the
nation's
top
bookseller
brand
for
seven
years
in
a
row
(1)
and was a key leader of the Company’s expansion into digital media
Mr. Riggio
founded and serves as a director of GameStop Corporation
Mr. Riggio
is Barnes & Noble’s largest shareholder
David Golden
Top
executive
at
Revolution
LLC
with
over
20
years
of
technology
and
finance
experience,
maximizing
value
from investments in diversified portfolio of innovative consumer-facing
businesses, including Zipcar Provides significant Tech & Media
experience having served as Vice Chairman and Director of JP Morgan’s
global technology, media and telecommunications investment banking practice
Dr. David Wilson
Brings
15
years
of
executive
and
board-level
experience
and
extensive
knowledge
of
the
education
market
as
President & CEO of the Graduate Management Admission Council
Specific previous Board experience in value-creating sale transactions of
Terra Industries Inc. and Laureate Education, Inc.
Valuable financial experience having served as Ernst & Young Audit Partner,
Managing Partner, National Director
of
Professional
Development
and
a
Director
of
the
Ernst
&
Young
Foundation
Notes: (1) Based on EquiTrend® Brand Study by Harris Interactive®
|
 Notes:
(1)
Stephen
Bollenbach
and
Burkle
served
on
the
board
of
KB
Home
until
Burkle
stepped
down
in
April
2010.
According
to
Bollenbach,
he
and
Burkle
have
known
each
other
for
25
years
and
have
vacationed
together.
Michael
McQuary
would
have
joined
the
board
of
Liquid
Audio
Inc.
as
a
Yucaipa
director
upon
the
failed
merger
of
Alliance
Entertainment
Corp.,
a
company
majority-owned
by
Yucaipa,
and
Liquid
Audio
in
2002.
According
to
McQuary,
he
and
Burkle
met
10
years
ago
when
McQuary
did
consulting
work for Burkle’s
technology portfolio and have been friends since then.
(2) “Business
Insider:
What
would
you
do?”
The
Atlanta
Journal
–
Constitution.
May
8,
2008
The Board Believes Mr. Burkle’s
Nominees Are
Neither Independent Nor Qualified
50
Yucaipa’s “independent”
nominees have been hand-picked by Burkle, are each being paid $100,000 to run
and
have
each
had
prior
dealings
with
Burkle
(1)
In
the
Board’s
view,
Burkle’s
nominees
do
not
have
the
experience
to
build
value
at
Barnes
&
Noble
Ronald Burkle
Has
provided
no
strategic
vision
and
offered
no
plan
for
Barnes
&
Noble’s
future
Was
part
of
the
Yahoo!
Board
that
rejected
an
acquisition
proposal
from
Microsoft
at
$33
per
share
-
Possibly
the biggest missed opportunity in the history of technology M&A
Served
together
with
Mr.
Bollenbach
on
the
Board
of
troubled
homebuilder
KB
Home.
KB
Home
shares
are
down 40% in the last two years.
Stephen Bollenbach
Served
on
the
Board
of
Time
Warner
that
approved
the
merger
with
AOL
–
possibly
the
worst
M&A
transaction in history in terms of value destruction
Served
together
with
Mr.
Burkle
on
the
Board
of
troubled
homebuilder
KB
Home.
KB
Home
shares
are
down
40% in the last two years.
Served as lead director at AIG when it almost went bankrupt and needed a $180 billion taxpayer
bailout to mitigate systemic risk to the global financial system
Michael McQuary
Presided over a stock price decline of nearly 70% during his 2-1/2 year tenure as
President of Earthlink Later
admitted
publicly
that
he
was
“pushed
out”
(2) |
 Board nominees
include the Founder and largest shareholder and two new highly-qualified
independents Significant Experience in Book Industry, Technology, Education,
Corporate Governance and Strategic Alternatives
Strong Governance
–
If Board’s nominees are elected, 7 of 9 directors would be independent
–
Separated positions of Chairman & CEO
–
Independent Audit, Compensation and Governance Committees
Electing the Board’s Nominees is in
the Best Interests of B&N Shareholders
51
Ron Burkle
Ron Burkle
and his nominees do not bring any relevant experience,
and his nominees do not bring any relevant experience,
insight or business plan to BKS
insight or business plan to BKS |
 52
Conclusion
Barnes & Noble is at a crucial inflection point:
Executing value-creating strategy in evolving industry with positive early results
Requires focused execution to drive shareholder value
Supported by an experienced and engaged Board
Independent Special Committee reviewing strategic alternatives to maximize value
Barnes & Noble does NOT need:
What is, in the Board’s view, a thinly veiled attempt by Yucaipa and Aletheia
to
acquire control without paying a premium to all shareholders
Burkle’s
nominees, who the Board believes have demonstrated no vision, no strategy
and no relevant experience
Costly legal battles to the detriment of shareholder value
Protect Your Investment: Vote the WHITE Proxy Card FOR The Barnes & Noble
Protect Your Investment: Vote the WHITE Proxy Card FOR The Barnes & Noble
Nominees and AGAINST Yucaipa’s Rights Plan Proposal
Nominees and AGAINST Yucaipa’s Rights Plan Proposal |
 Appendix
53 |
 54
Overview of Other Ongoing Related Party Transactions
Transaction
Since
Expense
(FY’10)
Comments
Aircraft Time
Sharing Agreement
Pre-IPO
$0.4MM
Use of jet aircraft owned by LR Enterprises Management LLC owned
by Len
Riggio
and others (prior to 2010, used aircraft owned by B&N College)
Reimbursement of costs for usage
Lease
Agreements
Pre-IPO
$4.9MM
$0.5MM
$0.8MM
Leases
2
corporate
office
buildings
where
Len
Riggio
has
an
ownership
interest,
expiring in 2013 and 2016
Company leases one of its B&N College stores from partnership owned by
Leonard and Stephen Riggio, expiring in 2014
Company leases office/warehouse from partnership in which Leonard Riggio
has
50% interest, expiring 2023
Freight Distribution
Agreement
1996
$17.2MM
Argix
Direct (formerly the LTA Group) provides national freight distribution
services for many major retailers including: Ann Taylor, Barney’s, Coach,
Hot Topic, Limited, Liz Claiborne, Polo and Toys R Us
A brother of Len and Steve Riggio
owns a 20% interest in Argix
(since 1996)
Argix
provided services to BKS for over 20 years –
long before this investment
Rates comparable to third-party freight distributors at time of
agreement Argix
higher contracted fuel surcharge and transportation costs led to amended
agreement providing annual credit to Company’s costs to level Argix
costs to
market
Source Interlink /
Digital on Demand
1993
(1)
$34.0MM
$3.0MM
Source Interlink used as primary supplier of music and DVD/video
Digital on Demand used as provider of music and video database equipment and
services
Len Riggio
and Yucaipa both owned minority interests in Source Interlink (prior
to its bankruptcy, through its parent company AEC Associates, LLC). Both own
minority interests in Digital on Demand through same investment
(1)
The predecessor company AEC One Stop Group started providing services to B&N in 1993. In
1999, AEC’s parent was acquired by an investor group in which Len Riggio and
Yucaipa were minority investors |
 College: EBITDA
Reconciliation Table 55
Pro Forma Fiscal 2010 ($ 000's)
12 Month Operating Profit
$ 49,241
Depreciation & Amortization
37,350
12 Month EBITDA
$ 86,591
Pre-Acquisition Adjustments:
Seller Paid Employee Bonuses
96,861
Gain on Transfer of Stock
(72,466)
Non-Cash Asset Impairments
6,163
Total Pre-Acquisition Adjustments
$ 30,558
12 Month Adjusted EBITDA
$ 117,149 |