Burkle launches proxy fight for Barnes & Noble after Delaware judge backs poison pill

By Mae Anderson, AP
Thursday, August 12, 2010

Burkle launches Barnes & Noble proxy fight

NEW YORK — Billionaire Ron Burkle launched a proxy fight for book seller Barnes & Noble Inc. on Thursday after a Delaware judge rejected his bid to overturn the company’s poison pill limiting a shareholder’s stake in the company to 20 percent.

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, set for Sept. 28.

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

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.

Companies adopt poison pills to dilute the value of a shareholder’s holdings to prevent a hostile takeover.

“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.

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 to Barnes & Noble’s board 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, 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 shareholders have 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, and Riggio is one of the board members up for re-election this year.

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

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 Amazon.com 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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