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The founder of a once highly successful but now outmoded company wants to take it private. The offer is hard to assess, because nobody is sure how to value a business in decline – or that should be in decline, given its floundering industry. The founder might be low-balling investors, or, equally, might be fooling no one but himself: He knows the business better than anyone, but his ego might render him unable to assess it objectively.
Are we talking about Best Buy, Dell, or Barnes & Noble? The last of the three is slightly different from the others. Leonard Riggio only wants to buy part of it – its retail bookstores and BN.com operations. The Nook e-book and reader business and the college bookstores would be on their own. Mr. Riggio has not yet proposed a price. In the past 12 months the retail stores have generated $4.8-billion (U.S.) in sales and $366-million in earnings before interest taxes depreciation and amortisation – but the company foresees a bad holiday quarter. So what's a fair price? Stifel's analysts reckon 0.1 times trailing sales makes sense, rendering a "conservative" price of about $500-million. At Credit Suisse, they think 4-5 times EBITDA fits, implying $1.7-billion or so. In other words, who knows.
The other half of B&N is no simpler. The college bookstores (using those same Stifel and Credit Suisse multiples) is worth between $175-million and $500-million. The e-books business had $270-million in losses over the last year; it would be easier to assess if there were a clearly stated strategy for it. There isn't.
Perhaps the companies' founders aren't thinking creatively enough. If restructuring can help these companies compete with the likes of Apple and Amazon, isn't the answer to merge all three? Cost synergies, economies of scale, a rationalised store base, a single online platform, integrated manufacturing. Someone call a banker.