Trial gets under way in Ron Burkle’s challenge of Barnes & Noble poison pill

Trial begins in Barnes & Noble poison pill case

WILMINGTON, Del. — Billionaire Ron Burkle testified Thursday that he doesn’t want to buy Barnes & Noble Inc. and was shocked when the bookseller adopted a poison pill plan after he increased his stake in it.

Burkle was the first witness called in a Delaware Chancery Court trial in which his Yucaipa Cos. is challenging the shareholder rights plan adopted last year.

Under the plan, an investor can’t buy more than 20 percent of the company’s shares without board approval. Doing so would allow other Barnes & Noble shareholders to buy stock at a steep discount.

Burkle, who increased his ownership stake in New York-based Barnes & Noble last year to about 18 percent, said the rights plan creates an unfair playing field that favors the controlling Riggio family, which owns more than 30 percent of the company’s common stock.

Burkle, who wants to see changes in Barnes & Noble’s corporate governance, also alleges that the rights plan interferes with his ability to communicate with other shareholders to gauge their interest in a possible proxy contest to elect three new directors at the company’s annual meeting, which is scheduled to be held by Sept. 30.

“We are sitting in a company that we think the rules are kind of unfair and unclear,” said Burkle, who testified that he increased his stake in Barnes & Noble because he believes its stock is undervalued.

In the lawsuit, Yucaipa argues that it should be allowed to buy up to 30 percent of Barnes & Noble stock, similar to the amount held by company chairman and former CEO Leonard Riggio, without triggering the poison pill.

Riggio is among the witnesses scheduled to testify when the trial resumes Friday.

Gregory Taxin, founder of a proxy advisory firm for institutional investors, testified that it was unusual for a company where insiders control a voting bloc of more than 30 percent to adopt a poison pill or lose a proxy contest, even against someone with Burkle’s deep pockets.

“These proxy fights are close, so it makes a difference if you start off at a big disadvantage,” he said.

But Patricia Higgins, one of six independent directors on Barnes & Noble’s board, defended the adoption of the poison pill, saying the board was concerned that Yucaipa might try to wage a proxy fight or join with other shareholders to try to gain control of the company without paying a premium to other shareholders.

Higgins said the board had “a robust discussion” and sought advice from outside counsel before adopting the plan.

The company has said it would submit the poison pill plan for ratification by shareholders within one year, but Higgins said no date has been set for the vote.