Los Angeles billionaire Ronald W. Burkle has won a key ally in his battle against Barnes & Noble Inc. after Institutional Shareholder Services, an influential advisor to stock investors, endorsed his plan to replace three of nine directors at the big New York-based bookseller.
In a 16-page opinion Sunday advising shareholders how to vote at next week's Barnes & Noble annual meeting, Institutional Shareholder also endorsed Burkle's proposal to rewrite the company's "poison pill" plan, which seeks to prevent hostile takeovers.
The change would allow Burkle's investment firm, Yucaipa Cos., to own up to 30% of Barnes & Noble. The world's largest bookseller has 717 stores in 50 states but faces intense competition in online sales and electronically delivered books. Yucaipa owns 18.8% of the shares and is barred by the "poison pill" plan from exceeding 20%.
In a statement, Yucaipa Cos. expressed gratitude for the support, saying, "We believe Barnes & Noble is significantly undervalued and that the right changes can unlock significant value for the benefit of all stockholders."
A Barnes & Noble statement called Institutional Shareholder's analysis "flawed and not in the best interest of our shareholders." It noted that two other shareholder advisors, Glass Lewis & Co. and Egan-Jones Proxy Services, support its anti-takeover plan.
On Monday another shareholder advisory service, Proxy Governance Inc., also advised shareholders to side with the company and against the dissidents.
Barnes & Noble also reminded shareholders that Burkle's legal challenge to its anti-takeover provisions had been rejected by a Delaware judge. Vice Chancellor Leo. E. Strine Jr. of the Delaware Court of Chancery said there was reason to believe that Yucaipa and Santa Monica money manager Aletheia Research & Management, which owns 15% of Barnes & Noble's stock, might be cooperating to take control of the bookseller.
Burkle, 58, who struck it rich by merging supermarket chains, began accumulating Barnes & Noble shares in November 2008. He accuses the company's chairman, Leonard S. Riggio, of destroying shareholder value by waiting too long to introduce its digital book, the Nook, to compete with Amazon.com's Kindle and Apple Inc.'s iPad.
He also has accused Riggio, whose family owns 33% of Barnes & Noble stock, of self-dealing, including a sale of a Riggio-owned college bookstore chain to Barnes & Noble on terms that allegedly were overly favorable to Riggio.
Institutional Shareholders said Barnes & Noble's financial performance "has been deteriorating since 2007, perhaps reflecting (as the dissidents have asserted) the consequences of a late entry into the digital book market."
"The deterioration in profitability … has been mirrored by the company's share price performance," the advisory service said. "BKS shares have consistently underperformed the company's peers, the S&P 500 Index and the S&P 1500 Retailing Index over a 5-year period."