Microsoft eyes tablet lift via Barnes & Noble deal
By Phil Wahba and Bill Rigby
NEW YORK/SEATTLE (Reuters) - Microsoft Corp is jumping into the fast-growing e-books market by investing $605 million over five years in Barnes & Noble Inc's Nook e-reader and college business, as it looks to unlock Amazon.com and Apple Inc's grip on the exploding tablet computer market.
The move comes just six months before the world's largest software maker is due to launch its new touch-enabled Windows 8 operating system, and the inclusion of a Nook app on Windows tablets should allow them to compete with Apple's iPad and Amazon's Kindle Fire.
It also gives Microsoft a direct interest in electronic publishing just as the market for downloadable college textbooks starts to take off and the publishing industry undergoes a radical shift toward electronic distribution.
"It's a good strategic deal," said Sid Parakh, an analyst at fund firm McAdams Wright Ragen. "It gets Microsoft in the game for e-readers, and gives them access to a market that has been growing nicely and they've basically sat out of. It also makes Windows 8 a more compelling platform from an e-readers perspective."
In turn, Barnes & Noble gets a much-needed capital injection and a way to enter the digital books market outside the United States. The new unit will be run and majority owned by Barnes & Noble and will maintain a relationship with the U.S. bookstore chain's nearly 700 stores.
Shares of Barnes & Noble soared as much as 90 percent in early trading, before sliding back and ending with a 52 percent gain at $20.75. Microsoft shares, which recently hit a four-year high, edged up 0.1 percent to close at $32.015.
Microsoft's initial investment of $300 million, which will give it a 17.6 percent stake in the newly created Barnes & Noble subsidiary, values the new unit at $1.7 billion. Over the next five years, Microsoft has committed to invest another $305 million.
The deal - initially worth only 0.5 percent of Microsoft's cash hoard - is financially small, but strategically important for both companies. Continued...