Barnes & Noble Turns the Page on an Ugly Shareholder Lawsuit

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Barnes & NobleA thorny corporate governance issue at Barnes & Noble (BKS) is finally going away.

A shareholder-initiated lawsuit has been settled as Leonard Riggio -- the leading bookseller's founder and chairman -- agreed to give up $29 million from the sale of his college bookstore business back to the company three years ago.

Investors scoffed at the $514 million deal at the time. Snapping up a chain watching over hundreds of college bookstores seemed like a step back as campuses were starting to flock to digital textbooks. The shift to digital was validated by Barnes & Noble itself when it introduced the Nook e-reader a year later.

Companies make bad decisions all the time, but this one was seen by many as a conflict of interest given Riggio's ownership stakes in both companies.

Throwing the Book at Booksellers

It will be Barnes & Noble itself -- and not its shareholders directly -- that stands to benefit from the decision of this derivative action lawsuit.

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It's a welcome break for a company that's been posting steep losses lately outside of its seasonally potent holiday quarter.
The bookseller is expected to post a chunky deficit of 93 cents a share when it reports next week. It's a big shortfall, but it happens to be in line with the losses that Barnes & Noble has posted in its fiscal first quarter in the two previous years.

Barnes & Noble is willing to take a near-term hit on its Nook e-reader to make sure that it remains relevant in a world in which media consumption is quickly migrating toward digital delivery. It saw its nearest rival, Borders, liquidate last summer, and the retailer doesn't want to be next.

A New Chapter

Barnes & Noble would love to be selling its Nook at profitable price points, but that's not possible with (AMZN) willing to sell its Kindle e-readers and Kindle Fire tablets at a loss. It's a cutthroat niche, and there's no room for generous markups.

5 Companies Getting Burned By Facebook
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Barnes & Noble Turns the Page on an Ugly Shareholder Lawsuit

1. Activision Blizzard (ATVI)

Life was easy when everyone was playing Guitar Hero. Facebook has reinvented the way game-hungry masses spend their time, logging into Facebook to tend to virtual farms, mafia campaigns, or item-finding experiences.

It's not a surprise that the traditional video game industry has been struggling for three years. Market leader Activision Blizzard doesn't even make Guitar Hero games anymore, and its World of Warcraft player count has been steadily declining over the past year. Call of Duty is still a growing franchise, but that can't last forever.

As traditional game companies are struggling, Zynga (ZNGA) -- which accounts for 18% of Facebook's revenue -- is thriving.

Diehard gamers are still firing up their consoles and are toting around their portable gaming systems. The problem is that mainstream gamers -- the casual players who didn't live and die by every franchise's latest release -- have moved on to casual and social diversions. They're free or nearly free, and the viral magic of Facebook connecting friends as players made it possible.

2. Google (GOOG)

Few will suggest that Google is in trouble. The world's most valuable Internet company is worth more than twice the market cap that Facebook is commanding. However, Big G is nervous.

Google's bread and butter business remains paid search, and what happens when folks stop trekking over to whenever they need to launch a query? If asking friends or simply relying on Facebook's own search box is easier, won't that hurt Google?

There are other ways that Facebook is having an impact on Google.

Google's YouTube may be the world's hottest video-sharing website with more than 800 million monthly visitors, but Facebook also allows its more than 900 million unique monthly users to upload clips on its site to share. We also have Gmail, Google's popular email platform. A lot of people are just sending private messages through Facebook that would normally go through traditional email.

3. Angie's List (ANGI)

Subscribers turn to Angie's List for unbiased reviews. Members pay dues to have access to customer reviews for local service providers. Need a handyman who can fix a pocket door? Is your clogged drain not clearing with your plunger? Who can tutor you daughter for her upcoming college entrance exam?

Angie's List prides itself on the vetted and unbiased opinions that can be found on its site. Well, as fate would have it, these are the same things that can be effectively tackled for free by posting a request as a status update on Facebook.

4. American Greetings (AM)

Remember when shelling out a few bucks for a greeting card was the most cost-effective way to commemorate a special occasion?

Well, thanks to Facebook, offering up birthday wishes or congratulatory acknowledgements is simply a Facebook posting away. Is it cold? Is it impersonal? It doesn't matter. It works. American Greetings has done its part to beef up its digital presence, but analysts still see earnings growth going the wrong way here this fiscal year.

5. Shutterfly (SFLY)

Facebook has also changed the way we consume photographs. We're no longer printing them out, and that's bad news for Shutterfly. The company turns digital snapshots into prints, photo books, and other customized merchandise.

Facebook is a hotbed for the sharing of photos, and that is something that has intensified since its recent acquisition of Instagram.

Shutterfly has managed to grow nicely even as Facebook ascends, but the perception that Facebook is turning Shutterfly and its peers into an elephant's graveyard exists.

All five of these companies may have cheered Facebook's plunge below its $38 IPO price on Monday, but their business models still have to reckon with the beast that the undisputed champ among social networks has become.

Both companies feel that the money they can make on digital downloads of books and magazines in the long run will be worth the losses on the hardware.

The future will have to bear that strategy out. For now, Barnes & Noble has settled its way out of an embarrassing predicament. It's now easier to focus on the challenges of tomorrow.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of Motley Fool newsletter services have recommended buying shares of and writing puts on Barnes & Noble.
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