Barnes & Noble Shareholders Scored a Huge Win Today

As of last week, Barnes & Noble looked like a company in huge trouble. Trapped between a brick-and-mortar book-retailing business in structural decline and a digital landscape dominated by Amazon and Apple, it looked like they might have no place to run. Then Microsoft rode to the rescue this morning with a blockbuster announcement that it’s investing $300 million in a Barnes & Noble subsidiary that’s so new it doesn’t even have a name. Preliminary documents refer to it as Newco, it will include Barnes & Noble’s Nook and College businesses, and in exchange for its money Microsoft is getting 17.6 percent of the business. That means Newco has a $1.7 billion valuation and Barnes & Noble owns the rest of it.

The news has sent Barnes & Noble shares up almost 80 percent in pre-market trading, meaning anyone who bought into the company anytime recently just made a ton of money.

Beyond the money, the most immediate implications of the deal are to settle outstanding patent litigation between the two companies and to ensure that a high-quality Nook ap will be available for Windows Phone devices. Over the longer term, logic (though not the press statements from either company) would seem to imply that Barnes & Noble will be abandoning the Android-derived OS that currently powers Nook devices and transition the platform into some variant of a Windows tablet. Microsoft has been throwing a lot of money around to try to build an ecosystem around Windows Phone and this could be seen as a next phase of that as they look ahead to what they hope will be a thriving future for Windows 8 as a tablet OS.