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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 6, 1999
BARNES & NOBLE, INC.
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(Exact name of registrant as specified in its charter)
Delaware 1-12302 06-1196501
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
122 Fifth Avenue, New York, NY 10011
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(Address of principal executive offices) (Zip Code)
(212) 633-3300
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Registrant's telephone number, including area code
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(Former name or former address, if changed since last report.)
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Barnes & Noble, Inc.
Index
Item 5. Other Events
Press Release............................................................ 3 - 4
Letter to Shareholders................................................... 5 - 9
Legal Matters............................................................ 10
Signature ............................................................... 10
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Item 5. Other Events.
On October 6, 1999, Barnes & Noble, Inc. issued the following press release:
BARNES & NOBLE, INC. ANNOUNCES PLANS TO BUY BABBAGE'S ETC.,
A MARKET LEADER IN ONE OF THE FASTEST-GROWING RETAIL SEGMENTS, FOR $215 MILLION
495 STORES IN 47 STATES AND PUERTO RICO
New York (October 6, 1999) - Barnes & Noble, Inc. ("Barnes & Noble") today
announced an agreement to acquire Babbage's Etc. LLC ("Babbage's Etc."), one of
the nation's largest operators of video game and entertainment software stores,
with 495 stores under the Babbage's(Registered), Software Etc.(Trademark), and
GameStop(Registered) names. Babbage's Etc. also recently launched a web site,
gamestop.com, to sell video games and personal computer software online.
The purchase price of $215 million consists of $189 million in cash, and the
assumption of $26 million in certain liabilities. If financial performance
targets are met over the next two fiscal years, Barnes & Noble, Inc. will make
contingency payments of $10 million in the year 2001 and $10 million in 2002.
The company believes it has purchased Babbage's Etc. at a significant discount
to the market value of similar companies. This purchase price represents a
multiple of 6.0 times Babbage's Etc.'s earnings before interest, taxes,
depreciation, and amortization ("EBITDA") for the twelve months ended July 31,
1999 and 5.1 times projected EBITDA of $42 million for the year ending January
29, 2000. When using the 10.8 times multiple of its nearest competitor,
Babbage's Etc. would be valued today at $385 million. Using the same 10.8
multiple and based on estimated 1999 EBITDA, Babbage's Etc. would be valued at
$454 million. Based upon the purchase price and projected results of Babbage's
Etc., this acquisition is expected to be accretive to Barnes & Noble, Inc.'s
earnings by $0.10 per diluted share for fourth quarter 1999 results.
Barnes & Noble has previously announced its intention to invest its free cash
flow in complementary, high-growth businesses. Consistent with that goal, this
acquisition enhances the company's top and bottom line growth potential and its
position as the leading retailer of books, music, video and related information
and entertainment products.
"This acquisition presents an exciting opportunity for Barnes & Noble. First,
because we believe we can expand this already fast-growing business at an
accelerated pace. Second, we believe that the integration of the product mix of
both companies affords additional opportunities for both revenue and bottom line
growth," said Alan Kahn, chief operating officer of Barnes & Noble, Inc. "This
acquisition is also very important to the positioning of our on-line affiliate,
barnesandnoble.com, where the penetration of the fast-growing video game market
is not only complementary, but can be considered essential."
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According to the NPD Group, a leading provider of global marketing information
on consumer purchasing and behavior, the video game and personal computer-based
entertainment markets are expected to grow from $8.4 billion in 1998 to $9.4
billion in 1999. Industry sources project sales to exceed $10 billion in 2000.
The principal owner of Babbage's Etc. LLC is Leonard Riggio, chairman and chief
executive officer of Barnes & Noble, Inc. Accordingly, the Board of Directors of
Barnes & Noble, Inc. established a special committee of independent directors to
consider the feasibility of the acquisition of Babbage's Etc., to evaluate the
fairness of the transaction to Barnes & Noble, to make a recommendation to the
Board based upon its conclusions, and to review and assist in negotiating the
transaction and the purchase price.
The special committee and the full Board unanimously approved the transaction.
The special committee was advised by independent legal counsel, Simpson, Thacher
& Bartlett and independent financial advisors, Peter J. Solomon Company Limited.
Babbage's Etc. was advised by Robinson Silverman Pearce Aronsohn & Berman LLP
and Merrill Lynch & Co.
The transaction is subject to customary terms and conditions, including
Hart-Scott-Rodino clearance. Barnes & Noble, Inc. expects to finance the
acquisition under its existing $850 million senior credit facility.
About Barnes & Noble
Barnes & Noble, Inc. (NYSE: BKS) operates 521 Barnes & Noble and 448 B. Dalton
bookstores. Barnes & Noble stores stock an authoritative selection of book
titles and provide access to more than one million titles. They offer books from
more than 50,000 publisher imprints with an emphasis on small, independent
publishers and university presses. Barnes & Noble is one of the world's largest
booksellers on the World Wide Web (http://www.bn.com), and the exclusive
bookseller on America Online (Keyword: bn). barnesandnoble.com has the largest
standing inventory of any online bookseller. Barnes & Noble also publishes books
under its own imprint for exclusive sale through its retail stores, mail-order
catalogs, and Web site.
General financial information on Barnes & Noble, Inc. can be obtained via the
Internet by visiting the company's investor relations Web site:
http://www.shareholder.com/bks/.
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Safe Harbor
This release may contain forward-looking statements regarding expectations of
the company. These statements are based on currently available information and
represent the beliefs of the management of the company. The future events, which
are the subject of such statements, are subject to certain risks, including
those set forth in the company's annual, quarterly and other reports on file
with the Securities and Exchange Commission.
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On October 6, 1999, Barnes & Noble, Inc. issued the following letter to its
Shareholders:
To the Shareholders of Barnes & Noble, Inc.:
Barnes & Noble, Inc. ("Barnes & Noble") is pleased to announce an agreement to
acquire Babbage's Etc. LLC ("Babbage's Etc."), one of the nation's largest
operators of video game and entertainment software stores, with 495 stores
operating under the Babbage's(Registered), Software Etc.(Trademark), and
GameStop(Registered) names. Babbage's Etc. also recently launched a web site,
gamestop.com, to sell video games and personal computer software online.
The purchase price of $215 million, consists of $189 million in cash, and the
assumption of $26 million in certain liabilities. If financial performance
targets are met over the next two fiscal years, Barnes & Noble will make
contingency payments of $10 million in 2001 and $10 million in 2002.
The company believes it has purchased Babbage's Etc. at a significant discount
to the market value of similar companies. This purchase price represents a
multiple of 6.0 times Babbage's Etc.'s earnings before interest, taxes,
depreciation, and amortization ("EBITDA") for the twelve months ended July 31,
1999 and 5.1 times projected EBITDA of $42 million for the year ended January
29, 2000. When using the 10.8 times multiple of its nearest competitor,
Babbage's Etc. would be valued today at $385 million. Using the same 10.8
multiple, based on estimated 1999 EBITDA, Babbage's Etc. would be valued at $454
million. Based upon the purchase price and projected results of Babbage's Etc.,
this acquisition is expected to be accretive to Barnes & Noble's earnings by
$0.10 per diluted share for fourth quarter 1999 results.
A High Growth Opportunity
The company has previously announced its intention to invest its free cash flow
in complementary high growth businesses. Consistent with that goal, this
acquisition enhances Barnes & Noble's top and bottom line growth potential and
its position as the leading retailer of books, music, video and related
information and entertainment products.
The opportunity goes beyond these numbers. Although the product mix of Babbage's
Etc. might appear to differ somewhat from the books and book-related products
sold at Barnes & Noble, a closer look reveals significant overlap in both
companies. Some of the existing and anticipated synergies Barnes & Noble expects
to achieve include:
o Shared and Expanding Customer Base. Babbage's Etc.'s customer base has
evolved over the last decade from teenage boys to a market of 14 to 34
year-old men and women. These customers are precisely Barnes & Noble's
customers -- educated,
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computer literate, upper income, consumers of information, education and
entertainment products.
o Actual Product Overlap. The "Game Culture" phenomenon has spawned new, and
in some cases immediate, consumer demand for related content such as books,
magazines, and videos. The current Pokemon(Trademark) craze is an example
of this overlap and this acquisition well positions Barnes & Noble to take
advantage of growing market opportunities created by the fast-growing video
game industry.
o Content Convergence. The expanding demographics of the video game and
personal computer entertainment customer are driving the expansion of
content into new areas such as sports, adventure, entertainment, and
education. The new 128 bit Sega Dreamcast and the emerging expected new
systems such as PlayStation II and Nintendo Dolphin are expected to create
more products that merge exciting entertainment with informational and
educational content.
o Real Estate. Barnes & Noble's highly skilled real estate team specializes
in identifying real estate opportunities and has important relationships
with developers across the U.S. These relationships will enable Barnes &
Noble to implement Babbage's Etc.'s various retail store strategies at an
accelerated pace. Barnes & Noble anticipates more locations with better
economics and greater certainty of results.
An Expanding Market
The acquisition of Babbage's Etc. will allow Barnes & Noble to capitalize on the
significant growth in the interactive video game and personal computer-based
entertainment markets. These markets are expected to grow from $8.4 billion in
1998 to $9.4 billion in 1999, according to the NPD Group, a leading provider of
global marketing information on consumer purchasing and behavior. Industry
sources project sales to exceed $10 billion in 2000
[BAR CHART APPEARS HERE]
Video Game and PC Entertainment
($ in billions)
1995-2000E
CAGR = 18.3%
1995 1996 1997 1998 1999E 2000E
---- ---- ---- ---- ----- -----
$4.4 $5.2 $7.3 $8.4 $9.4 $10.2
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The demand for video game software is broad-based and growing. The installed
base for "next generation" video game consoles increased from 15 million in 1997
to an estimated 27 million in 1998, a growth rate of 80%. Over the next two
years, the introduction of new platforms by industry leaders is expected to
continue to fuel the dramatic growth in the category.
[PIE CHART APPEARS HERE]
Total Video Game & PC Entertainment Market Revenues
Video Game Software 48%
Video Game Hardware 17%
PC Game Software 25%
Video Game Accessories 10%
1998: $8.4 Billion
Source: NPD Group
About Babbage's Etc.
Babbage's Etc. operates 495 stores in 47 states and Puerto Rico. The stores are
located in regional shopping malls and other high traffic locations in markets
with desirable demographics. Strong market presence, established relationships
with national mall developers, attractive store design and high average sales
per square foot give Babbage's Etc. a competitive advantage in securing
strategic mall locations on favorable terms. Babbage's Etc. employs
approximately 5,900 people.
Babbage's Etc. has established itself as the specialty video game retailer of
choice and has differentiated itself from other retail competitors in a number
of ways:
o First-to-Market. Its first-to-market strategy delivers to customers new
video games and entertainment software titles on the day of release.
o Knowledgeable Customer Service and Satisfaction. In-store sales
associates' product knowledge and hands-on game experience are important in
Babbage's Etc. marketing approach and ability to sustain customer
satisfaction.
o Great Stores in Prime Locations. Babbage's and Software Etc. stores average
1,500 square feet and carry more than 900 video game titles and 1,750
personal computer entertainment software titles. Babbage's Etc. expects to
open as many as 30 new mall-based stores in each of the next several years.
Sales of Babbage's Etc.'s stores averaged $678 per square foot in 1998,
among the highest in the specialty-retailing category. In addition, the
company will have opened 40 strip center stores in
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1999 under the trade name "GameStop." Early indicators of the financial
performance of these stores substantiate a rapid and extensive roll-out of
this strategy.
Financial Highlights
Babbage's Etc.'s sales have grown 21 percent from $383.4 million in 1997 to
$465.2 million in 1998. Babbage's Etc. expects 1999 sales to reach $580 million,
an increase of more than 24 percent. Sales for the eight months ending September
30, 1999, grew 26 percent from $230 million in 1998 to $289 million in 1999.
Fueled by the introduction of new products such as Pokemon(Trademark), Sega
Dreamcast and Color Game Boy, comparable store sales for the eight months ended
September 30, 1999 were 21.4 percent.
[BAR CHART APPEARS HERE]
Sales
($ in millions)
1997 1998 1999E
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$383.4 $465.2 $580.0
% Sales Growth N/A 21.3% 24.7
[BAR CHART APPEARS HERE]
Sales
($ in millions)
8 months 8 months
ended 9/98 ended 9/99
---------- ----------
$230.0 $289.0
% Sales Growth N/A 25.7%
EBITDA increased from $16 million in 1997 to $30.7 million in 1998, and EBITDA
margin improved from 4.2 percent to 6.6 percent of sales, respectively. For
1999, EBITDA is expected to increase to $42 million or 7.2 percent of sales.
[BAR CHART APPEARS HERE]
EBITDA
($ in millions)
1997 1998 1999E
---- ---- -----
$16.0 $30.7 $42.0
% Margin 4.2% 6.6% 7.2%
The principal owner of Babbage's Etc. LLC is Leonard Riggio, chairman and chief
executive officer of Barnes & Noble. Accordingly, the Board of Directors of
Barnes &
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Noble established a special committee of independent directors to
consider the feasibility of acquiring Babbage's Etc.; to evaluate the fairness
of the transaction to Barnes & Noble; to make a recommendation to the Board
based upon its conclusions; and to review and assist in negotiating the
transaction and the purchase price. The special committee and the full Board
unanimously approved the transaction. The special committee was advised by
independent legal counsel, Simpson, Thacher & Bartlett and independent financial
advisors, Peter J. Solomon Company Limited. Peter J. Solomon Company Limited
provided an opinion to the full Board of Directors and the special committee
that the transaction was fair from a financial point of view to Barnes & Noble.
Babbage's Etc. was advised by Robinson Silverman Pearce Aronsohn & Berman LLP
and Merrill Lynch & Company. The transaction is subject to customary terms and
conditions, including Hart-Scott-Rodino clearance. The Company expects to
finance this acquisition under its existing $850 million senior credit facility.
A Great Addition to Barnes & Noble.
Babbage's Etc. is an established leader in the video games and personal computer
entertainment product markets and is well positioned for continued growth. This
acquisition will allow Barnes & Noble to participate in this dynamic market.
Babbage's Etc. is an integral part of Barnes & Noble's plan for continued
innovation in the sales and marketing of books, music, video games and related
information and entertainment products.
Sincerely,
Barnes & Noble, Inc.
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Safe Harbor
This letter may contain forward-looking statements regarding expectations of the
company. These statements are based on currently available information and
represent the beliefs of the management of the company. The future events, which
are the subject of such statements, are subject to certain risks, including
those set forth in the company's annual, quarterly and other reports on file
with the Securities and Exchange Commission.
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Notes
Sony PlayStation II, Nintendo Dolphin, Pokemon(Trademark), Sega Dreamcast, and
Color Game Boy are trademarks of Sony, Nintendo and Sega.
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Legal Matters
On October 7, 1999, subsequent to the aforementioned announcements, two
shareholder derivative lawsuits were filed in the Chancery Court of the State of
Delaware by Harbor Finance Partners and Louis F. Mahler against Barnes & Noble,
Inc. and its directors. The lawsuits allege, among other things, a breach of
fiduciary duties to Barnes & Noble for the benefit of Leonard Riggio and seek
damages and to enjoin or rescind such transaction. The Company believes that the
transaction is in the best interests of shareholders and that the allegations
are without merit. The Company intends to vigorously defend its position.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BARNES & NOBLE, INC.
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(Registrant)
Date: October 12, 1999 By: /s/ Michael Archbold
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Michael Archbold
Vice President, Treasurer
(Chief Accounting Officer)
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