Microsoft Sells $300M Nook Stake Back to Barnes & Noble

Barnes & Noble (BKS) will buyout Microsoft’s (MSFT) $300 million investment in the bookseller’s separate digital Nook business for $62.4 million plus 2.7 million shares of its common stock, currently valued at $22.25 a share, making the total value of the payoff about $125 million, according to an 8-K SEC filing.

Microsoft made the initial deal in 2012, which gained it 17.6 percent of the Nook operation but the buyout amounts to a clear loss on its investment. While Microsoft didn’t indicate why it agreed to sell off its position, it’s also not clear why the vendor made the investment in the first place, other than to secure itself a distribution outlet in the e-reader segment, although the software giant never made a move in that direction.

Buying out Microsoft paves the way for Barnes & Noble to spin off the Nook business, which it signaled in June it intended to do. Under terms of the agreement, Microsoft will also receive about 22.7 percent of the total proceeds of Nook’s digital business, excluding the college bookstores, should a buyer emerge in the next three years.

In its FQ2 2015 ended November 1, Barnes & Noble’s Nook segment, which includes digital content, devices and accessories, recorded $64 million in sales, a 41 percent tumble from last year. Hardware sales fell about 64 percent and digital content revenue slid by 21 percent, both of which the company blamed on lower unit volume.

Maybe Nook’s continued losses is why Microsoft wanted out. Indeed, the agreement relieves Microsoft of any obligation to continue to fund support for Nook.

Or perhaps Samsung’s deal earlier this year with Barnes & Noble that yielded a 7-inch Android tablet based on the Korean device maker’s Galaxy Tab 4 running the Nook software soured Microsoft on the future of its investment.

“We mutually agreed that it made sense to terminate the agreement,” a Microsoft spokesperson told Reuters in an email.

Barnes & Noble said it expects to finalize spinning off its Nook Media business by the end of August 2015, five months after its initial projections.