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Behind Liberty’s Surprise $1 Billion Book Bid

5/31/2011 8:01 AM Eastern

Liberty Media CEO Greg Maffei offered
some new insight into his company’s surprise bid for
Barnes & Noble at an industry conference last week,
saying the media giant is bullish on the book retailer’s
Nook electronic reader.

“Why do we like this?” Maff ei asked at the Barclays
Global Communications, Media & Technology conference
in New York last Tuesday. “We see Barnes & Noble
as the leader among both traditional and college booksellers,
we like that space. We see that they have demonstrated
quite successful merchandising and operational
capabilities and have actually made excellent progress
on the digital side. The Nook has gained significant market
share in a very short time; less than two years since
its launch.”

According to Barnes & Noble, the Nook controls about
25% of the e-reader market.

Earlier in the week, Liberty chairman John Malone
hinted at a special meeting of shareholders that the main
motivation for the deal was a belief that Barnes & Noble
shares are undervalued, likening the bid to Liberty’s
ownership of Sirius XM Radio stock. Liberty bought a
40% stake in Sirius in 2009 for about $530 million. That
interest is worth more than $5 billion today.

Liberty lobbed a $1 billion bid for Barnes & Noble on
May 19 for a 70% stake in the troubled bookseller. Barnes
& Noble has said it formed a special committee to evaluate
the Liberty proposal. That decision should be forthcoming
in the next several weeks.

While Barnes & Noble was the hot topic at the shareholders
meeting, the order of the day was to approve a
long-awaited spin-off of two Liberty tracking stocks —
Liberty Capital and Liberty Starz. While shareholders
did sign off on that deal, another hurdle remains.

Liberty first announced its intention to spin off the
tracker in 2010. As part of the deal, the assets and liabilities
of Liberty Capital and Liberty Starz will be spun into
a holding company named Liberty CapStarz. Both Liberty
Capital and Liberty Starz will remain tracking stocks
after the deal is complete, but a third tracker — Liberty
Interactive — will become an asset-backed security.

Holding up the spin is an objection from Bank of New
York, one of its lenders, which sued Liberty in Delaware
Chancery Court to block the deal. While Liberty received
a favorable ruling from that court on May 9, the spin is
contingent on a non-appealable judgment. Bank of New
York has 30 days, until June 8, to file an appeal.

September