Barnes & Noble, Inc.

The Yucaipa Proxy Challenge

 Synopsis
• Ron Burkle is an activist investor and stockholder of Barnes & Noble

• Burkle’s Yucaipa Companies (Yucaipa) filed a “Definitive Proxy” to challenge

BN’s slate of board-of-director nominees at the upcoming stockholder
meeting.

• Proxy was made in response to a ruling against Yucaipa by Delaware Court

concerning a lawsuit that challenged BN poison-pill provision

• preventing outsiders becoming majority stockholders.

• Burkle disagreed with BN’s founder, chairman and owner of the majority
stake in the company, Leonard Riggio, concerning BN’s long-term strategy.

• Burkle wanted the company to cede ground to Amazon in the digital

reader marketplace and instead concentrate on BN’s physical stores
 Definitions
• activist investor - individual or group that purchases
large numbers of a public company's shares and/or tries
to obtain seats on the company's board with the goal of
effecting a major change within the company

• proxy - materials provided to shareholders before

meeting to disclose information and allow them to vote

• poison pill- maneuvers made to try to prevent hostile

takeovers (e.g., allowing existing shareholders to buy
more stock at a discount in the event of a takeover
attempt)- more in next few slides
Investopedia
 B & N Poison Pill
If an outsider acquired a 20
percent interest in the
company, existing
stockholders could buy
stock at a 50 percent
discount without board
approval
Incorporated in B&N Bylaws
 More on Poison Pills
• tactic used by Corporation to thwart an unwelcome or “hostile”
takeover bid

• examples:

• preferred stock option to current stockholders making cost

of acquisition unattractive

• employee stock ownership plans that vest upon acquisition

• golden parachutes for company executives

• stagger election of board of directors

• preventing outsider from becoming majority stockholder

Objective(s) & Environment

• Riggio’s task is to frame a response to this

immediate threat by activist shareholder

• Riggio in parallel needs find ways to retain long-

term control of the company

• Set against the backdrop of an industry that needs

to respond to being reshaped by technology
 What is Burkle’s beef?
• Yucaipa is a fund that invests in undervalued
companies and hopes to profit from a turnaround

• Yucaipa believes that Riggio in his agent role is not acting

in the principal’s best interests

• Stock price has declined from fiscal 2008 high of 34.89

down to the teens in 2010.

• Believes poison-pill provision added by BN goes

against basic stockholder rights

• particularly the right to elect independent directors.

What does Burkle want?
• BN shareholders to elect three Yucaipa nominees

• act in the best interests of the principals and will

not take decisions that further their self-interest

• accusing Riggio of furthering his self-interest to

continue to control BN

• Riggio is wearing two hats: that of a principal (as

a shareholder) and that of an agent (as the
chairman)
 Who should decide
Company’s strategy?

• top managers?

• outside shareholders?

• don’t principals delegate to agents?

 What is Corporate
Governance?
• Systems by which owners of firms direct and
control the affairs of the firm

• addresses the distribution of rights and

responsibilities among different participants

• board, managers, shareholders, and other

stakeholders

• spells out the rules and procedures for making

decisions on corporate affairs

Carpenter & Sanders

 BN Board (Ex 4)
2 Insiders
(Leonard & Stephen
Riggio)

7 Outsiders

Tenure of Outsiders?
Dillard - 18 years
Miller - 18 years
Monaco - 16 years
Other Board Observations

• CEO, Lynch, is not on Board

• Corporate Governance and Nominating Committee

• two (Dillard and Monaco) of three are long-

tenured board members

• is this committee truly “independent”?

 Key Role of BoD

• advise managers or corporate strategy

• firms in stable environments best served by

members from strategically related firms

• firms in unstable environments often best served

by members from strategically dissimilar firms
 Questions

• Are Burkle and Yucaipa trying to usurp Board’s

role in strategic advising of Company?

• Is Burkle’s focus too short-term given the role of

his Fund?

• Can he act in the best interest of long-term

stock performance?
 Options open to Riggio

• “defeat” Yucaipa’s board nominees by bolstering

support for nominating Committee nominees.

• Should the board unilaterally support Riggio on

this issue?

• How independent should the board be in matter

such as this?
 Other Options

• Take BN private to prevent loss of control

• would require a fair buyout price

• Other?
Control of a Board Signal?

• When a firm is the target of a raider or a fight for

control of a board

• it is a potential signal that the firm’s board and its

management has been “ineffective”
 Postscript
• Leonard Riggio and BN won the proxy war at the
September 28, 2010, stockholder meeting.

• Their nominees were elected to the company’s

board, and the company’s stock price in late June
2011 was $17.26.

• Riggio and the board were considering taking the

company private
 More Recent News
July 23, 2018 3:25 p.m. ET

An investment fund led by Richard Schottenfeld has acquired 5.7% of

bookseller Barnes & Noble Inc. BKS -0.83% and has met with the
bookseller’s senior management to discuss how to improve the company’s
performance, according to a securities filing.

BUSINESS 07/04/2018 05:40 am ET

Barnes & Noble Fires CEO Demos

Parneros For Violating Company
Policies
He will not receive any severance payment and he is no longer a member of the board.
Business Insider June, 2018
Article
• Barnes & Noble is struggling to compete with Amazon .

• Barnes & Noble stores have become places where customers

read, hang out, and have a cup of coffee rather than just shop.

• Revenue from the Nook e-reader, which Barnes & Noble

released to compete with Amazon's Kindle, has reportedly
dropped 85% since 2012.

In the past five years, Barnes & Noble has lost more than $1
billion in value.

It cut 1,800 full-time jobs earlier this year.