Microsoft and Nook Do A Deal

I live in Los Angeles. I get up early – usually by 5:30 AM. Still, that’s 8:30 AM on the East coast and before I was awake my inbox was already brimming with news and questions about Microsoft and Barnes & Noble forming “NewCo” and stocking it with Nook, College Textbooks, access to Windows 8 and, oh yeah, $300 Million.

What’s up? Whaddayya think? What’s your take?

OK, rather than send 100 emails, I figured it was easier to just make a post…

My response is fairly straightforward: Barnes & Noble have made no secret about plans to spin out Nook. This makes sense and we’ve seen this play before: Kobo split from Borders in the aftermath of the unfortunate collapse of the retail division. Kobo was summarily acquired last November (2011) by a Rakuten, a Japanese e-commerce company, and they are now growing, particularly in international markets.

What we didn’t see coming was Microsoft. Why not? First, the Nook technology team is located in the SF Bay Area not far from Google HQ and Nook, as we all know, is now essentially an Android Tablet. Second, Google is making a play (ha, ha) in all forms digital content dubbed Google Play. So, the logic goes, when Barnes & Noble opens the window and lowers Nook to the ground, Google would be there as prince charming (and, for dramatic effect, holding one of those oversize checks that golfers get for winning a tournament.).

That could still happen… maybe… or not.

Microsoft owns 17.6% of th new enterprise which has an implied valuation of approximately $1.7 Billion. Now, Google could buy the remainder with less than 3% of it’s current cash. One would assume, however, that Microsoft has a placeholder option in the form of a right of refusal to buy the rest of “NewCo” if another bidder comes along. Either way, Nook is in good shape to keep driving and be a formidable force in the digital publishing space.

So, for now the story is this: Barnes and Noble receives a welcome capital infusion to the tune of $300M, and Microsoft receives a Windows 8 partner – and it badly needs such partners.

Time for coffee.