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Barnes & Noble bookstore chain lures publisher Pearson with its Nook e-reader unit

| Saturday, Dec. 29, 2012, 12:01 a.m.

Pearson Plc agreed to buy a 5 percent stake in the Nook e-reader unit of struggling bookstore chain Barnes & Noble Inc., joining Microsoft Inc. as a backer of the business.

Barnes & Noble shares rose the most in almost three weeks, even after the New York-based company said holiday sales were below expectations and the Nook unit won't meet its projection for fiscal 2013.

Publisher Pearson's investment values Nook at $1.79 billion, about twice Barnes & Noble's market capitalization.

“This is a reaffirmation of the valuation that no one believed with Microsoft in this Nook media business,” said David Strasser, an analyst at Janney Montgomery Scott LLC in New York. “It's mixed news today; it's massive news for the next five years or 10 years for Barnes & Noble.”

Barnes & Noble is getting a second large investor for the Nook business, which includes digital and college-book businesses, after Microsoft's April investment valued the division at about $1.7 billion.

The bookstore chain has been losing money as it develops and markets the Nook to take advantage of a growing preference for digital books.

The company's shares rose 4.3 percent to $14.97 at the close in New York, for their biggest gain since Dec. 10. Barnes & Noble, in which John Malone's Liberty Media Corp. has a minority investment, has a market capitalization of $896.7 million.

Pearson, the London-based owner of a U.S. education publishing business and Penguin Books, is spending $89.5 million in cash for the Nook stake, according to a statement. After the transaction, Barnes & Noble will own 78.2 percent of the Nook unit, and Microsoft will hold 16.8 percent.

Pearson will have the option to purchase as much as an additional 5 percent, according to the statement.

In April, Microsoft invested $300 million in a new subsidiary that combined Barnes & Noble's Nook and college businesses.

Barnes & Noble's retail operations, struggling from a declining demand for books, posted a drop in sales last quarter. The company said in a regulatory filing that it will announce full holiday sales results on Jan. 3.

The disappointing holiday outlook is part of a general weakness in holiday sales, Strasser said.

“We're just plateauing on digital,” he said. “A lot of people just like books.”

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