Microsoft Corporation (MSFT) May Acquire Nook Media For $1 Billion

Posted May 9, 2013

Microsoft Corporation (NASDAQ:MSFT) is considering the acquisition of Nook Media for $1 billion as part of a plan to gain full access to the company’s line of e-readers, tablets, and e-books.  The acquisition details are cited in internal documents obtained by TechCrunch.  Microsoft previously invested $300 million in Nook. Nook Media LLC is a joint venture between Barnes & Noble and several other investors.

As part of the plan, Microsoft would receive preferred units in Nook Media, which would include a college book division.  The documents reveal that Nook Media is planning to discontinue their Android-based tablet business by the end of the 2014 fiscal year.  They will be transitioning to a model where Nook content will be distributed through apps on third-party partner devices.

The documents do not indicate whether the third-party tablets will be Microsoft’s Windows 8 devices or tablets made by competing platforms.  The third-party tablets are supposed to get introduced in 2014.

As part of Microsoft’s $300 million investment in Nook Media, it included an additional $180 million advance to develop content for Windows 8 devices.  Back in March, Nook announced that people that download their app on the Windows 8 operating system comes can get five books and five magazines free of charge.

Over 10 million Nook devices have been sold and they have over 7 million active subscribers.  The Nook app is available on Android, iOS, and Windows.

The documents also revealed that the Barnes & Noble’s retail operations are valued at $1.66 billion.  When Nook Media was created, the valuation of that division was given a $1.7 billion valuation.  Even when Pearson invested $85 million for a 5% stake in January, Nook Media was valued at around $1.8 billion.  If this deal happens, then Microsoft would pay well below the price that they originally bought in at.

Nook Media brought in $1.215 billion for the fiscal year 2012 at a loss of $262 million in EBITDA.  Revenues are expected to fall to $1.091 billion in the fiscal year 2013 with a loss of $360 million as the tablets are phased out.

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