Delaware judge rules for Barnes & Noble, rejecting claim by Burkle that poison pill is unfair

Thursday, August 12, 2010

Judge rejects Burkle suit against Barnes & Noble

NEW YORK — A Delaware judge on Thursday rejected billionaire Ron Burkle’s effort to overturn book seller Barnes & Noble’s poison-pill limiting any shareholder’s stake in the company to 20 percent.

If there were no poison pill or “rights plan,” as it’s formally called, Burkle could take over the company without paying shareholders a premium, Judge Vice Chancellor Leo E. Strine of Delaware’s Court of Chancery said in a ruling issued late Thursday.

“The defendants have shown that their adoption and use of the rights plan was a good faith, reasonable response to a threat to Barnes & Noble and its stockholders,” Judge Strine wrote in the 87-page opinion.

After the ruling, Burkle’s Yucaipa Cos. investment firm announced it told Barnes & Noble it plans to nominate Burkle and two others to the company’s board at its annual meeting, sept Sept. 28.

Burkle, who owns 19 percent of Barnes & Noble’s outstanding shares, sued the company hoping to gain the right to expand his stake without triggering the poison pill.

The ruling came after Barnes & Noble countered news reports that it had reached a settlement with Yucaipa. The Wall Street Journal and The New York Times reported late Wednesday that an agreement was close that would enable Barnes & Noble to avoid a costly proxy fight.

Yucaipa’s other two nominees are Stephen F. Bollenbach, chairman of KB Home, former CEO of Hilton Hotels Corp. and a member of the boards of Time Warner Inc. and Macy’s Inc., and Michael S. McQuary, who is CEO of Wheego Electric Cars Inc and a partner in an Atlanta investment firm and was on the boards of EarthLink Inc. and MindSpring Enterprises Inc., Yucaipa said.

In a separate statement, Yucaipa said it was disappointed in the court’s decision. The investment firm said it is a fundamental right to vote — or organize collectively to vote — one’s shares, and Barnes & Noble’s board should not be allowed to unilaterally restrict that right.

The statement said Barnes & Noble’s poison pill is particularly “egregious” as it was designed to keep anyone but founder Leonard Riggio from owning more than 20 percent of Barnes & Noble. The Riggio family owns more than 30 percent of Barnes & Noble’s common stock.

“Yucaipa believes no legitimate corporate purpose is served by treating the Riggios more favorably than other stockholders,” Yucaipa’s statement said.

Yucaipa said it is reviewing its options and will talk directly with Barnes & Noble stockholders at the annual meeting.

The book seller’s shares have slid 24 percent since the beginning of the year as its industry copes with Americans spending less during the economic downturn. Shoppers also are shifting away from printed books toward electronic versions, just as they moved away from compact discs toward digital downloads of music.

The shares rose more than 4 percent, or 58 cents, to close Thursday at $15.06.

They were unchanged after the ruling was released after the markets closed.

Barnes & Noble faces steep competition from online and from rival Borders Group Inc. The company made a surprise announcement last week that it was exploring options that include putting itself up for sale.

Associated Press Writer Emily Fredrix in New York contributed to this report.

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