Pearson Buys pays $89.5 million for 5% Stake in NOOK Media

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Pearson, the British education publisher, purchased a 5 percent stake in NOOK Media, the Barnes & Noble subsidiary that’s behind the NOOK reader and its digital content store, for $89.5 million.

“We formed NOOK Media to be a leader in the exploding market for digital content,” said William Lynch, Chief Executive Officer of Barnes & Noble, Inc. “Pearson is a forward thinking company similarly focused on reading and learning, with powerful assets and a terrific management team. We welcome their partnership in NOOK Media, and look forward to working with them and Microsoft to deliver great digital experiences for our shared customers.”

NOOK Media spun out of Barnes & Noble’s earlier this year, with the parent company owning 78.2 percent. Microsoft invested $300 million in NOOK Media to bring NOOK content to Windows 8 devices, and owns 16.8 percent stake in the company.

The recent cash influx gives Barnes & Noble’s leverage to invest in its struggling ereader business, which has yet to be profitable. NOOK Media indicated in a regulatory filing discussing the investment that it expects holiday sales to fall below the company’s previous projections.

Pearson gains broader distribution for its content with its new stake in the company.

“This new agreement extends our partnership and deepens our commitment to provide better, easier experiences for our customers,” said Will Ethridge, CEO of Pearson North America. With this investment we have entered into a commercial agreement with NOOK Media that will allow our two companies to work closely together in order to create a more seamless and effective experience for students. It is another example of our strategy of making our content and services broadly available to students and faculty through a wide range of distribution partners.”

The deal raises NOOK Media’s valuation to $1.79 billion, up from $1.7 billion, well outweighing Barnes & Noble’s own market capitalization of $900 million, which has led some analysts to suggest that Barnes & Noble’s spin off the digital size of its business. At the beginning of 2012, the company announced plans to do so, and Microsoft’s purchase was a step in that direction. This latest deal is another.

“The big plan is to totally spin off the Nook Media business,” Morningstar analyst Pete Wahlstrom told the Wall St. Journal. “Today’s announcement with Pearson is a sliver of that, it moves toward the 100 percent spinout. The difference is, Barnes & Noble is selling it to an industry partner, effectively, and not the general John Q Public.”