Microsoft revealed on Monday that it would invest $300 million in Barnes & Noble’s Nook division for a 17.6 percent stake. The deal values the e-reader business at $1.7 billion.
The move by Microsoft will help bolster the standing of Barnes & Noble’s fastest-growing unit. The giant bookseller had said earlier this year that it was exploring strategic options for the business, including a potential divestiture or strategic partnership.
The company has wagered heavily on the Nook line, e-readers and tablets that compete against Amazon’s best-selling Kindle devices in the hotly contested world of electronic books.
Earlier this month, Barnes & Noble announced a new black-and-white e-reader with a glowing screen so that it can be used in the dark. The introduction of the e-reader was followed by strong reviews from critics, and Barnes & Noble executives said the device is already sold out.
But the Nook division’s growth has come at enormous financial cost, weighing down on Barnes & Noble’s bottom line and prompting the strategic review. The retailer added on Monday that it was still weighing other options for the business.
The investment from a deep-pocketed tech giant will give Barnes & Noble breathing room.
“It gives them a much larger, financially stable partner,’’ said Peter Wahlstrom, a senior analyst with Morningstar Equity Research. “The bricks-and-mortar side of the business is profitable, but all that cash goes into investing in digital.’’
For Microsoft, it is an opportunity to expand its efforts in the tablet arena, said James L. McQuivey, an analyst with Forrester Research.
“This is a way for Microsoft to have a hand in the physical tablet business without actually being in the physical tablet business,’’ he said.
Barnes & Noble shares rose 52 percent to $20.75 yesterday, while Microsoft’s were little changed at $32.01.
Through the deal, the two companies will settle their patent disputes, and Barnes & Noble will produce a Nook e-reading application for the forthcoming Windows 8 operating system, which will run on traditional computers and tablets.
The new division, which has yet to be renamed, will also include Barnes & Noble’s college business. It is meant to help the business compete in what many expect to be a growth area for e-books: the education market, something that Apple has already set its sights on.
Barnes & Noble chief executive William J. Lynch Jr. said the company would maintain a strong relationship between the digital businesses and the brick-and-mortar stores. “We’re not changing the base number of the stores materially,’’ Lynch said. “We’re looking to play a little offense with the bookstores.’’
Barnes & Noble will capture additional points of distribution from hundreds of millions of Windows users, potentially reaching consumers who did not associate the bookseller with e-books.
Publishers appeared to be cheered by the news. Lynch said that he had received encouraging e-mails Monday morning from chief executives from five of the six major publishers in the business.
“These publishers are completely aligned with Barnes & Noble,’’ Lynch said. “Publishers are going to like this deal a lot.’’
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