I think B&N made a big mistake, though its original shareholders may be pleased to have gotten direct ownership in fast growing GME, thanks to parental shortsightedness. Original shareholders would have been smart to dump their BKS after the spinoff. When B&N spun off GME it's long time CEO Leonard Riggio crowed that BKS had grown GME's value to around $850 million from a purchase price of $400 million in 1999. But why would any one with any vision at all sell the dominant retailer in the video game market? Video gaming after all, has for some time been widely acknowledged as one of the big growth businesses of our digital future. Giant companies, from Sony to Disney to News Corp are jockeying for a peice of this business. GME has an amazing franchise with millions of registered customers to their retail outposts and Gamestop.com. BKS was also a seller at a time when video gaming was in the midst of a pre-console upgrade funk. An obvious bottom in the business.
Today GameStop has more than doubled its market reach and has a value of $3.3 billion net of about $900 million in debt. Barnes and Noble has a net market value of around $2.4 billion. Wall Street apparently prefers the video game king because it sells for a PE of nearly 36 times trailing earnings compared to less than 20 for its bookish former parent. GME is currently being upgraded by analysts because of same store growth in excess of 20%. BKS is being downgraded because its same stores sales are going down.
And what about stockholdes? BKS has gone from about $30 post spinoff to a recent $40 recently. That amounts to a gain of 33% over the last 26 months. GME has gone from a price of $20 at the time of the spinoff to a recent $55, for a gain of 177% during the same period.
The entrenched and lackluster Riggio brothers shouldn't fret too much though. Boneheaded spinoff's are nothing new. Here are few others that may give them solice.
BankofAmerica, which spun off its Charles Schwab division before most banks realized that the discount brokerage business was an important strategic business and before discount brokering exploded on the Web. And lest we not forget ATT, which first bought Craig McCaw's cellular company and created AT&T Wireless. They botched its management and after a stock spin off sold it to Cingular which is owned by SBC Communications. Now Cingular has purchased AT&T, renamed the entire company AT&T and wireless is its core business. Link
