September 20, 2010 / 11:34 PM / in 7 years

Barnes & Noble, Burkle each win support in fight

NEW YORK (Reuters) - Barnes & Noble Inc failed to win the support of an influential shareholder advisory firm in its bitter proxy fight with billionaire investor Ron Burkle over the future of the nation's largest bookseller but got help from another.

Institutional Shareholder Services on Monday came out in support of Burkle's bid to install himself and two other directors on Barnes & Noble's board and to amend a poison pill designed to prevent him from taking a larger, more influential ownership stake.

But Barnes & Noble won the support of Proxy Governance Inc, which said it favored the retailer's recommendations to shareholders, giving Barnes & Noble the backing of two of the three most influential advisory firms.

The bookseller said that Proxy Governance's analysis "clearly concluded that the company's nominees are best suited to represent the interests of Barnes & Noble shareholders."

Last week, Glass Lewis & Co also supported Barnes & Noble's candidates, which include Chairman Leonard Riggio and two outside directors.

Shareholders are scheduled to vote on the proposals at Barnes & Noble's annual meeting in New York on September 28.

Burkle, whose Yucaipa Companies investment firm owns 18.8 percent of Barnes & Noble, has accused Chairman Leonard Riggio, who founded the chain, of mismanaging Barnes & Noble for his own benefit. Riggio owns 28.2 percent of the company's shares and is its top shareholder.

In its report, ISS largely agreed with Burkle's contention that Barnes & Noble's board has been too closely tied to Riggio, and raised questions about several of the company's dealings with the Riggio family.

"We believe the dissidents have demonstrated a compelling case that change in the Barnes & Noble board is warranted," the document said, citing the company's "deteriorating operating performance, poor shareholder return and less-than-enthusiastic analyst recommendations."

While Proxy Governance came out in favor of Riggio and two other new outside directors on the Barnes & Noble slate, it said it was "not necessarily endorsing the actions taken by current management."

Instead, Proxy Governance said, Barnes & Noble's two outside nominees -- David Golden, a partner in investment firm Revolution LLC, and David Wilson, chief executive of the nonprofit organization that runs the Graduate Management Admission Test -- would improve the board's independence.

Proxy Governance said independent directors were all the more important given that Barnes & Noble has put itself up for sale.

ISS and Proxy Governance's recommendations are closely followed by institutional investors, which own about a third of Barnes & Noble's shares, excluding a stake owned by Aletheia Research & Management.

Aletheia holds 15.1 percent of the company's shares and has raised its stake in Barnes & Noble in near lockstep with Yucaipa over time. That has led Barnes & Noble to accuse it of being in cahoots to take over the company, a charge Yucaipa has denied.

Should Aletheia and Yucaipa vote in tandem, they would form a bloc of about a third of the shares, roughly the same voting power as that held by Riggio and other insiders.

Other large institutional investors include BlackRock, Dimensional Fund Advisors, State Street and Vanguard Group. None has a stake larger than 4 percent.

Yucaipa said it was gratified that ISS agrees with its position. It did not immediately respond to a request for comment about Proxy Governance's analysis.

Barnes & Noble urged shareholders on Monday to reject Burkle's efforts to gain control of the company, and said the ISS analysis was "flawed."

Burkle has nominated himself and two others for election to the board for three-year terms.

Barnes & Noble shares closed the day up 2 percent at $16.19.

Reporting by Dhanya Skariachan and Phil Wahba, additional reporting by Megan Davies and Jonathan Stempel; Editing by Robert MacMillan, Gunna Dickson, Matthew Lewis and Phil Berlowitz

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