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Barnes & Noble to separate from Nook Media

The Barnes & Noble board has given the company the green light to separate its retail and Nook Media businesses to optimize shareholder value.

The company anticipates completing the separation of the businesses into two separate public companies by the end of the first quarter next year.

“In fiscal 2014 we have taken certain actions to strengthen the company, including the ongoing rationalization of the Nook business, growing the college business through new contract acquisitions and increased offerings to students and faculty, and initiatives to improve retail’s sales trends,” said CEO Michael P. Huseby. “Our fiscal 2014 results and solid financial position at year-end reflect the positive impact of those actions. We believe we are now in a better position to begin in earnest those steps necessary to accomplish a separation of Nook Media and Barnes & Noble retail. We have determined that these businesses will have the best chance of optimizing shareholder value if they are capitalized and operated separately. We fully expect that our retail and Nook Media businesses will continue to have long-term, successful business relationships with each other after separation.”

The company has engaged Guggenheim Securities, LLC as financial advisers and Cravath, Swaine & Moore LLP as legal counsel.

The move to separate from its Nook business, which reportedly sent shares up about 9%, came as the company reported fourth-quarter results for the period ended May 3. The company narrowed its net loss to $36.7 million from $114.8 million for the prior-year quarter. Revenue increased 3.5% to $1.3 billion.

“We’re pleased with our improved financial performance in fiscal 2014, generating EBITDA of $251 million, the highest it’s been in four years, while executing on our strategic initiatives during the year,” said Huseby. “Retail improved sales trends during the second half of the year, generating annual EBITDA of $354 million. College increased revenues from higher margin textbook rentals, continued to add new school contracts and developed and soft-launched Yuzu, our digital education platform, growing EBITDA to $115 million. At Nook, we executed on our plan to sell through existing device inventory, implemented cost rationalization plans, began to pivot our strategy from device focused initiatives to a content centric approach with the signing of our partnership with Samsung, all while significantly reducing year-over-year losses.”

Looking ahead, the company expects both retail comparable bookstore sales and core comparable bookstore sales to decline in the low-single digits. College comparable store sales are also expected to decline in the low-single digits. The company expects to continue to decrease EBITDA losses in the Nook segment.

Barnes & Noble added that there can be no assurances regarding the ultimate timing of the proposed separation or that such separation will be completed. Any separation of NooK Media and Barnes & Noble retail into two separate public companies will be subject to customary regulatory approvals, securing any necessary financing, tax considerations, final approval of the Barnes & Noble board of directors and other customary matters and is dependent on numerous factors that include the macroeconomic environment, credit markets and equity markets.