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Published: Tuesday, 5/1/2012

Microsoft gets Barnes & Noble stake

Companies team up on e-book business

A Barnes & Noble Nook Color eReader on display at a Best Buy in Mountain View, Calif. A Barnes & Noble Nook Color eReader on display at a Best Buy in Mountain View, Calif.

NEW YORK — Books and bits united Monday as Microsoft infused money to help Barnes & Noble compete with top electronic bookseller Amazon. In exchange, Microsoft gets a long-desired foothold in the e-book and college textbook business.

With Microsoft Corp.'s $300 million investment, the two firms have teamed up to create a subsidiary for Barnes & Noble Inc.'s e-book and college textbook businesses. Microsoft is taking a 17.6 percent stake.

The deal underlines the import of e-bookstores as traditional booksellers and tech firms jockey for status in the market. E-books are thought to account for 20 percent of U.S. book sales.

For Microsoft, the investment is a way to get back into e-books. It has dabbled in the field since at least 2000, but never developed much traction. It was Amazon.com Inc. that blew the market open with its Kindle in 2007, creating a potent challenge to Barnes & Noble's brick-and-mortar bookstores.

Top Microsoft rivals Apple Inc. and Google Inc. have their own e-book stores. All are building businesses that include hardware, software, and content;e-books and readers are part of the puzzle. With that perspective, the deal is important, Citigroup analyst Walter Pritchard said. But he doesn't expect any near-term financial impact from the deal, noting that even if the Microsoft-Barnes & Noble venture is successful, it leaves the Nook a distant second in the e-reader market, behind the Kindle.

The deal gives Barnes & Noble ammunition to fend off shareholders who have agitated for a sale of the Nook e-book business or the whole company, but the companies said they are exploring separating the subsidiary, provisionally dubbed "Newco," entirely from Barnes & Noble. That could mean a stock offering, sale, or other deal.

The deal puts to rest concerns that Barnes & Noble doesn't have the capital to compete in the e-book business with Amazon and its Kindle, analyst David Strasser at Janney Capital said.

Barnes & Noble stock zoomed up $7.07, or 52 percent, to close at $20.75. The $26 opening price was a three-year high. Microsoft's stock rose 4 cents to $32.

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