After operating as separate businesses since 1986—following Barnes & Noble Inc.'s purchase of B. Dalton—B&N Inc. and Barnes & Noble College Booksellers will be reunited this fall upon the completion of the $596-million merger of the two bookstore chains. Both companies were founded by Len Riggio, who owns the privately held B&N College and who approached the B&N Inc. board about a possible sale. Bringing the college operation under the B&N corporate umbrella will add a reliable source of cash flow to the retailer and give it the opportunity to expand the college unit's operations, executives said in explaining their reasoning for doing the deal. Reuniting the “complementary businesses” has long been a priority for the B&N Inc. board, emphasized director Irene Miller. Uniting the businesses will give B&N Inc. the opportunity to cross-promote its print and digital products to a wider audience, Miller noted.

Although college students are further along in using digital products than consumers, many bookstores that serve students are ill-equipped to sell e-books and other digital items, B&N executives said in a conference call with investors. B&N Inc. CFO Joe Lombardi said the company expects to be able to use its technical expertise to help college bookstores make the transition from print to digital. B&N College operates 624 college bookstores, but there are more than 2,000 institutions that still operate their own stores. B&N College adds about $45 million in new business annually, Lombardi said, and new contracts should add $53 million in revenue for fiscal 2010.



Since 2004, B&N College's sales have increased at a quicker rate than on the trade side, increasing nearly 28% in the period, compared to 7.4% for B&N Inc. And while same-store sales fell in two of the last three years for B&N Inc. (and are projected to fall again this year), comp sales rose in each of the last three years at B&N College. The 1.9% increase in B&N College sales in the fiscal year ended May 2 was the slowest in at least five years, but was still better than the decline posted by B&N Inc. The small gain in the last fiscal year was attributed to the recession.

While B&N executives painted the college market as offering more opportunity for growth than the consumer market, it is not without its challenges. It is far from clear, for instance, how students will actually buy digital products. And the used textbook market, a major source of sales for B&N College, has become increasingly competitive as more online players enter the field and students use the Internet to sell books themselves. Nebraska Book Company—along with Follett, one of B&N College's major competitors—noted in its 10-k filing for the year ended March 31 that among the challenges it faces in fiscal 2010 are increasing competition for the supply of used textbooks plus more competition from alternative media and alternative sources of textbooks for students. Still, NBC said it expected revenue and EBITDA to increase in the current fiscal year. For the fiscal year ended March 31, sales at NBC rose 5.1%, to $610.7 million, and EBITDA increased 1.5%, to $71 million.

Following the completion of the deal, Miller, who was the chairperson of the committee that reviewed the acquisition, said she expects very little organizational changes, with B&N College remaining in Basking Ridge, N.J., under the direction of Max Roberts; a B&N spokesperson said it had not yet been determined who Roberts will report to when the deal is closed.