Liberty Media makes $1 Billion offer for Barnes & Noble

According to Financial Times, Liberty Media has offered to buy Barnes & Noble, the struggling US bookseller, for $1 billion, in an unexpected deal that would significantly diversify Liberty’s holdings.

Booksellers are struggling to remain solvent as customers buy more books   online, specifically from Amazon.com, and adopt e-books. Amazon said that for the first time, e-books are outselling paperback or hardcover books. B&N has not been able to transform itself into a retail destination. However, its Nook e-reader is selling well. Borders, the second-largest bookseller in the US, filed for bankruptcy in February and has struggled to find a buyer. This means very bad news for traditional book publishers who have not embraced digital channels aggressively.

Barnes & Noble, the largest book retailer in the country, announced the offer, valued at $17 per share, after the market closed on Thursday. It cautioned that the company’s board has not reviewed the proposal and that no deal was assured.

John Malone, the billionaire chairman of Liberty, is known to be an astute deal hunter. His most recent success was Liberty’s purchase of 40 per cent of satellite radio provider Sirius XM for $530m, a stake he bought when the company was near bankruptcy and which is now worth several billion dollars.

But Mr Malone has minimal experience in physical retail. Liberty is best known for its online and television holdings, which include the QVC home shopping channel, a collection of websites, and the Starz television channels.

Barnes & Noble has been on the block since last summer. Many bankers had said they did not expect an external bidder to come forward. The company’s founder, Leonard Riggio, was seen as one potential buyer.

Barnes & Noble was profitable for the three months ending January 29, with net income of $60.5m for that period. But the bookseller lost $14.5m for the 39 weeks ending then.

But Barnes & Noble has made swift inroads in the digital reading market. Its Nook e-reader is selling well, and the company has become the main competitor to Amazon’s Kindle e-reader and e-book store.

The company said Liberty’s offer was contingent on the approval of Mr Riggio and his continued involvement in management. Mr Riggio purchased a large block of shares in the company last August at $16.96 per share. Mr Malone’s offer of $17 per share means Mr Riggio would not take a loss on that investment.

The $17 per share offer represents a 20 per cent premium on Thursday’s closing price of $14.11. In after-hours trading, Barnes & Noble shares were up nearly 25 per cent to $17.50.

Skype Deal Highlights Emerging PE Exit Trend & Increasing Appetite by Strategics

An investor group led by Silver Lake has agreed to sell communications software company Skype to Microsoft (NASDAQ: MSFT) for $8.5 billion in cash. 

CPP Investment Board, Andreessen Horowitz and eBay (NASDAQ: EBAY) are also among the sellers.

Goldman Sachs and J.P. Morgan advised Skype on the sale. The Silver Lake-led consortium acquired its 70% stake in Skype from eBay for about $2.03 billion in 2009. Silver Lake's almost $1 billion investment will reportedly net the firm a profit of at least $2 billion and a return in excess of three times its investment.

Lately, PE investors have been able to find several strategic acquirers willing to fork over big bucks for their portfolio companies. Since the beginning of 2005, there have been 74 announced or completed exits in which PE   investors are selling or have sold companies to corporations for at least $1 billion. 

A renewed interest for these big transactions was sparked during 2010, when PE investors were involved in 25 sales to corporations, up from only 3 during 2009. With 10 such deals announced and completed so far in 2011, corporations' spending spree for large PE-backed companies appears to be continuing. 

This trend bodes well for PE investors and their limited partners, as the announced and completed sales since the beginning of 2010 total over $75 billion of capital.

Microsoft to Roll Dice with $8.5 Billion Skype Deal

The Akbaspost was first to break out the news last year that Skype was in talks with Cisco.  In an unprecedented move however, Microsoft Corp. agreed to buy Internet phone company Skype Technologies SA for $8.5 billion in cash—the most aggressive move yet by Microsoft to play in the increasingly converged worlds of communication, information and entertainment.

Microsoft has been struggling to deliver growth under Balmer’s leadership in the last decade. This can be at best considered as a desparate move to jumpstart corporate growth and acquire substantial share of online consumer business.  

On the upside, Microsoft plans to leverage Skype's real-time voice, video and text communications capabilities across several product lines including business (Lync, Sharepoint, Office), mobile and Xbox/Kinect. They now have a serious contender to Apple's Face Time and Google's Talk. In our opinion Skype value proposition has the potential to alienate some wireless carriers while the company is trying to build its smartphone franchise.

On the downside, the very same reason that hampered internal innovation and collaboration across multiple lines of businesses, would make this deal very difficult to integrate and use as a spring board to drive material growth for the company. This also once again proves why transformative innovations will always come from not from established big firms and smaller more nimble competitors. Microsoft is not best known of its integration execution capabilities and we would remain concerned about the value creation potential of the deal. 

On a more strategic note, we would expect for Microsoft to get even more aggressive following this deal. We would expect more acquisitions in Enterprise Content Management (ECM) more likely Open Text or Autonomy, in Enterprise Resource Planning (ERP) most likely SAP and NetSuite, in Workflow and Business Process Management (BPM) most likely someone like Pegasystems.  

According to WSJ, the deal will let Microsoft "be more ambitious, do more things," Chief Executive Steve Ballmer said in an interview.

The Redmond, Wash., company was motivated to acquire Skype because communication technologies have been "the backbone" of Microsoft's growth in recent years and that Skype has "built a real business" in the communications field, said Mr. Ballmer.

In a joint phone interview with Skype Chief Executive Tony Bates, Mr. Ballmer said Microsoft sees an opportunity to expand Skype's reach by blending it with technologies across Microsoft's vast portfolio of products, including the Xbox videogame console, Windows Phone software and Lync communications product for businesses.

When asked about the high value of the acquisition Mr. Ballmer said the deal will be accretive to Microsoft profits in "year one" after the transaction closes.

"We're buying a company with EBITDA over $250 million," he said. "We see an opportunity to accelerate its revenue and profit base."

Skype will become a new business division within Microsoft, and Mr. Bates will assume the title of president of the Microsoft Skype Division, reporting directly to Mr. Ballmer.

Buying Skype—a service that connects millions of users around the world via Internet-based telephony and video—would give Microsoft a recognized brand name on the Internet at a time when it is struggling to get more traction in the consumer market. The need to add a communications component is seen as crucial with the growing popularity of Apple Inc.'s FaceTime video-chat service and Google Inc.'s Voice.

Mr. Ballmer vowed to continue to support Skype on non-Microsoft platforms, which means keeping the service available to iPhone and Mac users.

"We will continue to support non-Microsoft platforms because it's fundamental to core value proposition," Mr. Ballmer said during a conference call on Tuesday. He added Microsoft will continue to build upon Skype's customer base.

Microsoft has invested heavily in marketing and improving the technology of its Bing search engine. While it has made some market share gains over the past year, Google still dominates the search market with more than 65% of U.S. searches going through its site.

About 170 million people log in to Skype's services every month, though not all of them make calls. Skype users made 207 billion minutes of voice and video calls last year.

The Skype deal ranks as the biggest acquisition in the 36-year history of Microsoft, a company that traditionally has shied away from large deals. In 2007, Microsoft paid approximately $6 billion to acquire online advertising firm aQuantive Inc. Many current and former Microsoft executives believe Microsoft significantly overpaid for that deal. But they are also relieved that Microsoft gave up on an unsolicited $48 billion offer for Yahoo Inc. nearly three years ago. Yahoo is valued at half that sum today.

Mr. Ballmer, though, sees the Internet as an essential battleground for Microsoft, a company that still makes the vast bulk of its profits from Windows and Office software systems. Investors have become increasingly concerned about Microsoft's ability to squeeze continued growth out of those businesses, as rival technologies from Apple, Google and others put more pressure on profits.

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The division behind Microsoft's hugely lucrative Office suite of applications also makes a product, known as Lync, which ties together email, instant messaging and voice communications into a single application. Skype could strengthen that offering.

The deal shows how far Skype has come since it was launched in 2003 by Niklas Zennstrom and Janus Friis, two men who had created a file-sharing technology called Kazaa that became widely associated with music piracy. While Skype was initially popular with techies, it increasingly worked its way into the mainstream by offering free or cheap phone calls which were especially appealing to international callers.

Microsoft Chief Financial Officer Peter Klein said he expects the Skype deal to get regulatory approval this year. The company is using cash held overseas to purchase Skype, which is based in Luxembourg. Mr. Ballmer added he expects Skype to be add to earnings in the first year after the deal closes.

When eBay Inc. purchased the company in 2005 for $2.6 billion in cash and stock, Skype was regarded as something of an experiment in which eBay's buyers and sellers would use the service to communicate about potential transactions.

The experiment faltered, and eBay gave up on Skype in 2009,selling a 70% stake to a group of technology investors including Silver Lake Partners, venture capital firms Index Ventures and Andreessen Horowitz, and the Canada Pension Plan Investment Board, who will make a handsome return on the Microsoft transaction.

Goldman Sachs Group Inc. and J.P.Morgan Chase & Co. advised Skype on the deal. Microsoft isn't using any financial advisers for the deal.

The agreement was approved by the boards of Microsoft and Skype and is subject to regulatory approvals.

Microsoft shares fell 1.4% to $25.47 in afternoon trading Tuesday, while eBay shares were up 2.2% to $33.84.

For all its promise, Skype has had a mixed history as an operating business. It has produced little net profit in the eight years since it was founded. Profits continue to remain elusive as the company expands its business world-wide. Last year the company posted revenue of $860 million and $264 million in operating profits, but still had a loss of $7 million. The company had $686 million in long-term debt as of Dec. 31.

Skype uses a technology called voice over Internet protocol, which treats calls as data like email messages and routes them over the Internet, rather than a traditional phone network. Skype's software, which can be downloaded free, allows users to call other Skype users on computers or certain cellphones for free. Skype users can also call land lines for a fee and conduct video calls.

Skype could play a role in Microsoft's effort to turn around its fortunes in the mobile-phone market, an area where it has lagged behind rivals Apple and Google. The company last year launched a new operating system for mobile phones known as Windows Phone 7 that has been well reviewed by technology critics but hasn't yet meaningfully improved Microsoft's market share.

Microsoft will likely need to tread carefully, though, in integrating Skype into its mobile software because of the potential for pushback from wireless carriers, whose support Microsoft badly needs. Skype could give consumers a way to make cheap phone calls over the Internet from mobile phones, without paying higher rates to the carriers.

Last August, Skype filed documents to go public but put its IPO plans on hold after bringing in Mr. Bates. Skype had expected to raise close to $1 billion through its IPO, people familiar with the matter said at the time. At the same time, the Luxembourg-based company entertained conversations in the past with potential buyers and joint-venture partners, including Facebook Inc., Google and Cisco Systems Inc., according to other people familiar with the matter. Skype had sought between $5 billion and $6 billion to sell itself, they added. Our blog earlier reported the news while back.