The Egatz Epitaph

The Riggio family continues their war to remain in control of the Barnes & Noble empire built by Leonard S. Riggio after purchasing the flagship store on 18th and Fifth Avenue in 1971. Despite a brief win last Tuesday, stockholders are unhappy, employees are underpaid, and the company remains unable to execute a compelling eBook strategy in the wake of Amazon’s Kindle and Apple’s iPad.

With Len Riggio’s successful staving off of his inevitable ouster as Chairman last week, he now turns his energy to keeping the Barnes & Noble dinosaur alive while he finds someone foolish enough to buy the chain he expanded into mythic proportions.

Ronald “Wild West” Burkle and his investment machine, Yucaipa Companies, continue to be the Riggio family’s worst nightmare. Although Len Riggio was able to sway shareholders to vote for the company’s choice of three candidates for the Barnes & Noble board, he won by a slim margin. In a further victory, shareholders voted to prevent Yucaipa from gaining more than nineteen percent of the stock.

Since Americans have a long history of voting against their own best financial interest, none of this should come at a surprise. The senior management of Barnes & Noble has built an empire of retail book super stores, but although they had more than enough resources to do it, they failed first when they had the opportunity to become Amazon.com, and they failed again when they missed the eBook revolution by more than two years. How this incompetence and neglect to shareholders can be rewarded is something future historians will have to assess, along with the 2004 elections and Robert Nardelli’s $210 million reward for running Home Depot into the ground.

Wild West Burkle will not be going away soon. Even if Riggio manages to hang on until the company is sold, the face of California corporate assimilator Burkle will haunt Riggio for his remaining days and visit him, tanned and grinning, upon his deathbed. With Barnes & Noble corporate governance seemingly run by the blindfolded throwing of darts at a wall chart, the influential Institutional Shareholder Services had sided with Yucaipa the previous week in an attempt to get three Yucaipa brains on the Barnes & Noble board.

The Riggio clan’s win was close, with less than fifty percent of outstanding shares supporting them. With shareholders losing one-quarter of their value in the past year, their voting to retain Len and Steve Riggio are nothing short of baffling. If they needed any one reason to vote out the current regime, that alone would suffice. Shareholders could also factor in the fact the stock has lost almost 20% of it’s value since the dot com implosion ten years ago, and Amazon.com’s stock is up 300% during the same period, to over $150 per share. The previously mentioned eReader missed opportunity is yet another reason to try someone else at the Barnes & Noble helm.

Perhaps the most obvious reason to vote Len Riggio and clan out of the company they have controlled for 39 years is the shameful $514 million acquisition of the College Bookstore chain owned by the Riggios. It almost boggles the mind how S.E.C. regulators could allow such a deal to happen, but in a country where incompetence is rewarded, legal dream teams make bad things go away, and lobbyists write legislation, it’s hard to claim precedent hasn’t been set.

As the Riggio properties in the Hamptons are being closed up for the long New York winter, Ronald “Wild West” Burkle and his team of corporate raiders are locking and loading for another skirmish. You can bet this war is far from over. Although it’s still to early to write a book about it, the smart money knows how it’s going to end. The question is, will what’s left of Barnes & Noble carry it on their shelves?

Egatz owns no stock in either Barnes & Noble or Yucaipa Companies.