The new subsidiary, referred to in this release as Newco, will bring together the digital and College businesses of Barnes & Noble. Microsoft will make a $300 million investment in Newco at a post-money valuation of $1.7 billion in exchange for an approximately 17.6% equity stake. Barnes & Noble will own approximately 82.4% of the new subsidiary, which will have an ongoing relationship with the company’s retail stores. Barnes & Noble has not yet decided on the name of Newco.Florian Mueller gives the Florian Mueller take (Yay patents! Stupid open source lawyers.):
The fact that Barnes & Noble partners with Microsoft proves, if anyone still needed any proof, that its mostly antitrust-related "patent misuse" allegations against Microsoft, which the ITC threw out even ahead of trial and refused to reconsider, were bogus claims borne out of desperation (for lack of patents that could be used to bring counterclaims), possibly misguided by certain lawyers who self-servingly raised totally false hopes in Barnes & Noble's management as to what they could achieve by shouting "antitrust! antitrust!"The actual story looks more interesting. Microsoft has invested $300 million for a minority stake in a spin-off of a $1.3 billion dollar business. Microsoft also gets some unspecified royalty payments on patents from that new business. B&N is a retail book store in trouble, it needs saving. Microsoft is a software business with a lot of cash, but at imminent risk of decline. It needs a way forward in the industry. Forward is the Apple, Google, Amazon direction: content stores on many devices.
Nook gives Microsoft a key content platform and two avenues forward. It gives them a content store that Microsoft's clout can help expand to music and movies, it adds that store to Windows Phone/7/8, and it gives them a hedge in an Android tablet platform. Microsoft gives Nook money.
All in all not a bad deal for some dodgy patents and $300 million dollars.
Update: PaidContent weighs in, with some clarity on where the patent litigation was heading, and why Microsoft would pay $300 million to make it go away:
By settling with B&N, Microsoft avoids an ugly court battle that might not have been decided in its favor. Like most companies that wield patents as weapons, the goal is to prevent competition and maximize royalties. Microsoft has no dog in the e-reader fight, so the partnership with B&N makes sense for Microsoft anyway.Update 2: Now TechCrunch, but with more details (money):
A section called “Commercial Agreement” notes that Microsoft will be paying the Barnes & Noble subsidiary $180 million in connection with revenue sharing on the Nook app that B&N will make for the Windows 8 platform. This is nonrefundable, the filing notes. Microsoft is also paying $125 million (equal to $25 million over five years) “for purposes of assisting NewCo in acquiring local digital reading content and technology development.” This, too, looks to be nonrefundable.So, maybe the number is over $600 million. More reason to think this would expand the Nook store beyond books. If the number Microsoft is investing is over half a billion, Microsoft looks more like the desperate party. The danger for B&N is that they go the way of Nokia, anchored to a sinking platform.
