Barnes & Noble has Strategic Schizophrenia

After spending the last few months getting ready to take on Amazon’s (NASDAQ:AMZN) Kindle Fire with its NOOK tablet, Barnes & Noble (NYSE:BKS) announced plans on Thursday to explore strategic options to separate the business.

The NOOK had great success during the holiday nine-week holiday period ending December 31, 2011, according to the company. NOOK unit sales, which includes NOOK Simple Touch”, NOOK Color” and the new NOOK Tablet,” rose 70 percent from the same 2010 period.

The NOOK tablet sales exceeded the company’s expectations, while the NOOK Simple Touch not so much with its disappointing numbers. Barnes&Noble’s NOOK products have received high marks from the  marketplace.

The market didn’t like the news very much and the stock dove 29.1 percent in premarket trading on Thursday after the announcement. The company also announced it cut the fiscal year 2012 outlook with sales now estimated at $7 billion to $7.2 billion versus a $7.33 billion consensus, with an earnings per share loss increased to $1.10-$1.40 versus. $0.63 estimates.

The Wall Street Journal saw the NOOK spin-off as a sign that the bookseller was leaving the book business and one options pundit perceived the news as the company will now “focus on their core $SBUX (NASDAQ:SBUX) landlord/$AMZN (NASDAQ:AMZN) Showroom biz.”

Rumors began swirling that the business unit could be the target of a takeover.

Acquisition Target

One suggestion was Sony (NYSE:SNE). Doug McIntyre of 24/7 Wall Street thought Sony could be a partner and a take an equity position in a possible Nook spinoff. He explained that if Barnes&Noble’s digital $750 million 2012 sales forecast is correct, a Nook company could be valued between $3 billion to $4 billion. With shareholders keeping a a majority interest in Nook, he wrote, it “may be more worth more than Barnes & Noble is in its entirety today.”

Maxim Group’s John Tinker also saw the NOOK business as an acquisition target. While he maintained a “Buy” rating on Barnes&Nobles at a $20 price target,  NOOK devices sales push the price higher. He said, “On a conservative basis, the NOOK alone with $1.5B in e-book and e-reader revenue could be worth $900M at 0.6x revenues, about $13 per share. However, Nook is growing 70% compared to Dell (DELL) at 2%.”

And a final story discussed Nook as a possible target of Google, Inc. (NASDAQ:GOOG). The Forbes article was called “5 Reasons Google Should Buy Nook.” There were no Facebook articles citing it as a potential suitor.

Damage Control

Barnes&Noble CEO William Lynch to the airwaves for damage control on Friday by appearing on CNBC. Lynch said of the news, “Whatever we do, we will continue to have a tight relationship between the Nook and [our] stores.”

He added, “We know that one of the goose that have laid the golden egg here in our success with Nook has been the showrooms that the stores provide, and we’ll continue to have a very symbiotic relationship there. We get that.”

Lynch also tried to calm fears that a Nook spinoff will effect the retailer’s stores to promote the Nook devices. He also tried to explained the weak performance of the company’s Nook Simple Touch.

When asked by CNBC’s Scott Faber about a timetable what to do with the NOOK business, Lynch responded, “As long as it takes…Speed isn’t a factor here. We may do nothing. We called it an exploratory” On Friday, the stock closed at $11.19, down 0.44 percent.

To contact the reporter on this story: Debbie Baratz at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com