Microsoft (NASDAQ:MSFT) and Barnes & Noble Part Ways

Microsoft (NASDAQ:MSFT) in the time period of just 3 years turned its initial investment of $300 million to a mere $120 million and soon realized its mistake of investing in Barnes & Noble’s (NYSE:BKS) Nook Media division.

Earlier this month Barnes & Noble (NYSE:BKS) grabbed Microsoft’s (NASDAQ:MSFT) share in the division to spinoff an expansion of the digital reader division which comprises of its college bookstores as well. Only time will tell whether the split between Microsoft (NASDAQ:MSFT) and Barnes & Noble (NYSE:BKS) will benefit B&N or not. The company however is hoping to recover from the decline in sales that took place at both its brick-and mortar locations. The investors as a reaction to the spinoff have increased the stock price.

Parting ways is not difficult

Microsoft (NASDAQ:MSFT) had to face a loss of $180 million which obviously doesn’t look good as far as the deal between Microsoft (NASDAQ:MSFT) and B&N is concerned. Towards the end of the last quarter Microsoft (NASDAQ:MSFT) had more than $100 billion in both cash as well as investment but after losing $180 million in just 32 months the company’s balance sheet is not looking too good.

The split between the two companies hasn’t come over night. It has been gradually building up. Earlier this year Microsoft (NASDAQ:MSFT) was seen removing its Nook app from its windows 8 device. Microsoft (NASDAQ:MSFT) took off the Nook app in the hope of creating its own reading app. On the other hand Barnes & Noble (NUSE:BKS) knocked the doors of Samsung to come up with new iteration of the Nook.

Microsoft (NASDAQ:MSFT) has its fingers crossed to retrieve something from its investment. The company got 2.7 million shares of Barnes & Noble (NYSE:BKS) and it will further get 22.7% of Nook’s net profit provided the business gets sold in the coming 3 years.

What lead to the split?

Barnes & Noble’s (NYSE:BKS) brick-and-mortar stores as well as its Nook division are witnessing poor sales. The retail sales during the last quarter went down 1.5% in comparable-store sales which includes the Nook sales. The numbers are disappointing for the investors. The management feels that splitting up the two companies will help both the companies to focus on their sales and they will be able to attract more customers as well.

Nook is also facing intense competition from Amazon.com and other cheap reading tablets like Kindle. However Nook is ready to use its freedom to make calculated moves to minimise net loss.

Why investors are interested in the spin off?

The emergence of two separate companies after the spinoff will allow both the companies to focus on their requirements and actions. It also gives other companies room to acquire one either or both of the businesses.

The brick-and-mortar business is facing competition from other retailers and is struggling with online sales. Nook on the other hand is facing severe completion from Amazon, Apple and Google for sales of e-books.

Therefore the splitting up of the two companies will reduce complications and each company can then focus on its own problem and try to come up with a solution to that problem. Microsoft (NASDAQ:MSFT) will be able to focus on its software and hardware. Meanwhile B&N will also get time to focus on other important things without worrying about how it will affect Microsoft (NASDAQ:MSFT). Investors feel that this will help both the companies in generating profits which is why they are interested in the spin off. The split is scheduled to take place in august and only then the pros and cons of the spinoff will be evident.