Barnes & Noble Education Rejects Unsolicited Acquisition Offers from Menlo Park Fund

Barnes & Noble Education (BNED), a Basking Ridge, N.J.-based educational products and services provider previously spun off from the bookstore chain of the same name, has rejected unsolicited acquisition proposals from a private investment fund headed by a San Francisco Bay area real estate developer.

The firm, Bay Capital Finance, recently purchased shares in the publicly traded company and is actively moving to exert control. Led by Sunil Suri, who heads San Francisco Bay area real estate development and management firm, Menlo Capital Group, Bay Capital says BNED’s board of directors has ineffectively run the company, as evidenced by the fact that its stock has dropped by about 70 percent—to $4 a share Tuesday afternoon—since the company spun off from Barnes & Noble in August 2015.

Bay Capital wants to replace BNED’s board but the company has refused to allow the fund to nominate members at an upcoming annual stockholders meeting. This is because Bay Capital bought its shares in June and missed a deadline to become a “stockholder of record,” according to a letter BNED sent to the fund.

The nominees that Bay Capital had in mind include Suri himself, along with the managing director of an inorganic chemicals company (who also bought BNED stock in June), the principal of an investment firm and the managing partner of an Asia-focused TV production company.

Bay Capital filed a lawsuit against BNED in a Delaware court on Monday, asking the court to allow its board candidates for stockholder consideration. The fund also wants BNED to pay for Bay Capital’s legal fees and damages determined at trial. “This course of conduct raises doubts that the current Board will consider any serious, strategic alternatives, such as that presented by Bay Capital, necessitating Board-level change,” the fund said in the lawsuit.

BNED’s current board includes a principal at Square, the executive chairman of Gamestop, a director of former parent company Barnes & Noble, the CEO of a college presidents coaching firm, and a retired Navy vice admiral who served as superintendent of the U.S. Naval Academy and the chancellor of the State University of New York. They are all named in the lawsuit as well.

Since February, Bay Capital has sent several acquisition proposals to BNED. All of them have been unanimously rejected by the board, which said the offers undervalued the company and were also “highly conditional and not credible,” according to a statement Monday. It said the offers were not credible because they didn’t include “a fully underwritten debt commitment” and failed to identify “adequate equity capital that, in the aggregate, would be sufficient to complete a transaction.”

The most recent proposal, sent by Bay Capital Finance on June 27, offered $4.50 a share in cash. A previous June proposal offered between $5.25 and $5.75 a share in cash, and a February proposal offered between $6.75 and $7.25 a share in cash. BNED said it did not solicit any of the offers.

BNED claims to operate about 1,450 physical and virtual bookstores nationwide and serve over 6 million students and faculty. In recent years it has started offering digital and homework help tools. Its stock closed at $4 a share on Tuesday, down from a 12-month high of $7.40 on Feb. 25, a few weeks after Bay Capital made its first offer.

“In making its determination, the Board considered that Bay Finance’s proposals fail to recognize the value of BNED’s digital transformation and other operational initiatives which have positioned the business to drive long-term growth and enhance shareholder value,” according to the statement.

Bay Capital has further accused BNED of sharing false and misleading information in its proxy statements, namely information about deadlines for shareholder proposals and nominations and voting standards.

“BNED’s shares have lost 40% of their value since we delivered our first acquisition offer in early February,” Bay Capital managing partner and principal Suri said in the statement. “It is certainly not in the best interests of the Company’s stockholders for the Board to continue to abdicate its responsibilities and fiduciary duties in pursuit of a risky ‘digital transformation’ while stockholder value deteriorates so precipitously.”

In its latest reported earnings, BNED reported a significant cut to its net losses year over year, but it also did not generate as many earnings. It lost $24.4 million in its latest fiscal year, compared to $252.6 million lost during its 2018 fiscal year. It reported total sales of $2.03 billion for fiscal year 2019 and adjusted earnings before interest, taxes, depreciation and amortization of $104.9 million. The year before, it reported $2.2 billion in sales and $126.8 million EBITDA.

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