Barnes & Noble shares up 18 percent on Nook report

NEW YORK (AP) -- Barnes & Noble Inc.'s shares surged 18 percent Thursday after a blog reported Microsoft is considering buying its Nook e-book and e-book reader business outright.

THE SPARK: Late Wednesday technology blog TechCrunch said Microsoft was considering bidding $1 billion for the digital assets of Nook Media LLC, citing internal documents. Microsoft already owns a 16.8 percent stake in the unit.

The documents also state that Nook plans to discontinue its Android-based tablet business by the end of the 2014 fiscal year as it moves to a model where Nook content is distributed through apps on third-party partner devices, the TechCrunch report said.

Barnes & Noble and Microsoft declined to comment on the TechCrunch report.

Barnes & Noble, the biggest traditional bookstore chain, has invested heavily in its Nook e-book and e-book reader unit, but has been mulling its next move for the unit.

The retailer launched high-definition versions of its Nook HD and Nook HD+ tablets in September in an effort to better compete against Amazon.com's Kindle Fire as well as other tablets like the iPad, iPad Mini and Google's own Nexus 7. It introduced the Google Play app store on those tablets earlier this week.

The company's Nook unit has attracted investors — in addition to Microsoft, U.K. publisher and education company Pearson PLC has a 5 percent stake. But aside from investor funding, it has not been profitable. In its most recent quarter, which included the holiday season, Nook revenue fell 26 percent to $316 million. Barnes & Noble recorded $21 million in returns due to weak demand during the holiday season, and $15 million in allowances for promotions.

Meanwhile market share has slid. Barnes & Noble had a 1.9 percent share of the worldwide tablet market in the fourth quarter, making it the No. 5 tablet player behind Apple, Samsung, Amazon and Asus, according to data from IDC. But by the first quarter it had slipped out of the top 5, replaced by Microsoft.

At the same time, competition is proliferating, with the global tablet market growing quickly. It more than doubled to 49.2 million units during the first quarter, according to IDC's estimate.

THE ANALYSIS: "If a buy does happen, I have questions about where that will leave the retail segment and how and who will run the Nook division, and how far ahead Amazon will be in the marathon while MicroNook is still lacing up," said Simba Information senior analyst Michael Norris.

He added that Nook as hardware used for e-reading, has dropped in the past year as the competition has risen. According to Simba's Trade E-Book Publishing 2013 report, about 15 percent of adults who read at least one e-book in 2012 used a Nook device, compared with 22 percent a year earlier.

SHARE ACTION: Shares rose $3.24, or 18.2 percent to $21.01, after earlier reaching a 52-week high $22.79.