Here’s Why Microsoft Wants a Big Chunk of Barnes & Noble

Big things could be happening at Microsoft (NASDAQ:MSFT) and Barnes & Noble (NYSE:BKS); it has been reported that Microsoft might have put a substantial offer on the table.

According to TechCrunch, Microsoft made an offer to buy up Barnes & Noble’s digital assets held in the Nook business. The deal was reported as being a $1 billion offer. While Nook Media includes Barnes & Noble’s college bookstore chain, that business is reportedly not part of the deal.

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Microsoft already holds a major stake in Nook Media. Just over a year ago, it bought up a 17 percent share in the unit, when the entire business was valued at $1.7 billion. As of December, that value had increased to $1.8 billion, and at that time, British publisher Pearson Plc (NYSE:PSO) also bought a stake.

It’s hard to say just what it would mean for either company if the deal goes through. Both companies have ways they could benefit from such a deal, but there are also some clear detractors to it.

For Microsoft, the deal would give it a lot of content, though it would be quite pricey. But, since Nook devices have been running on software — Google’s (NASDAQ:GOOG) Android — that competes with Microsoft’s own, it could be a chance for Microsoft to eradicate a competitor from one area. TechCrunch’s report suggested that Nook Media wouldn’t be selling Android-based tablets after fiscal 2014.

For Barnes & Noble, the impacts of such a deal were immediately palpable. Shares of the company quickly jumped from $17.77 to just over $22 in pre-market trading Thursday morning. However, since market’s open, shares have slowly slipped to $20.68.

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Selling off the digital media business could be the “effective sale of the entire Nook business, unless co-ownership or leasing of digital content is arranged,” according to Stifel analyst David Schick. But, since the Nook business has been struggling — the devices have had trouble competing with other tablets — it could be a good way to make a pretty penny on a portion of Nook Media that might have otherwise withered without a nice cash influx.

It’s not clear just how far along the companies are in this deal, as Microsoft wasn’t immediately available for comment and Barnes & Noble declined to comment when contacted by Reuters.

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