Tickers in this Article: BKS, LCAPA, LCAPB, AMZN, AAPL
Book retailer and eReader provider Barnes & Noble (NYSE:BKS) closed the books on another difficult year as sales and profit levels disappointed investors. But with an existing bid on the company by a media conglomerate, a floor has been set on the share price for the time being. Shareholders are holding out hope for a higher competing bid, but may have to settle for the current buyout offer given the company's uncertain outlook. TUTORIAL: Mergers and Acquisitions: Valuation Matters

Full Year Recap
Reported sales increased 20% to $7 billion, but included the purchase of a number of college bookstores at the end of 2009 for approximately $600 million. Retail sales at the traditional bookstores made up 62.4% of the annual sales total and declined nearly 1% as same-store sales grew 0.7% and slightly offset the loss of sales from store closures. Sales of the Nook e-reader offset falling sales of traditional books and related merchandise. Online sales jumped 50%.

Barnes & Noble reported negative net income of almost $74 million as it is having to spend to develop the Nook reader and build out its capabilities for selling digital books. Higher indebtedness also increased interest expense. Overall, the company lost $1.31 per diluted share - than analysts had been expecting. (For more on earnings per share, see Assess Shareholder Wealth With EPS.)

Management did not provide earnings guidance as it is in the midst of reviewing a takeover offer from Liberty Capital Group (Nasdaq:LCAPA). Back in May, Liberty offered to acquire Barnes & Noble for just over $1 billion, or $17 per common share. Currently, analysts are projecting full-year sales growth of just less than 4% and total sales of $7.3 billion. The current earnings expectation is a loss of 18 cents per share for the coming fiscal year.

Barnes & Noble is trading closer to $19 per share on speculation that another bidder will enter the fray and outbid Liberty's current offer. Based off of the operating fundamentals, it is difficult to place a firm value on Barnes & Noble as it is reporting losses on the income statement. The company has also not yet released a full year cash flow statement with details on how much - if any - cash is being generated from its operations.

Bottom Line
There are few details on when Barnes & Noble management might decide on the Liberty bid, but it will likely be acquired and cease to trade as its own publicly-traded company in the coming months. In the meantime, the demise of archrival Borders has helped its competitive position, though it remains to be seen if it can compete with the likes of Amazon (Nasdaq:AMZN) and Apple (Nasdaq:AAPL) in the eReader space over the long haul. Overall, its future prospects are murky at best and will likely soon be the problem of either Liberty or another suitor that offers more than $17 per share for the company. (Gaining a sustainable competitive advantage is not as simple as just being the best. For more, see Competitive Advantage Counts.)

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